4 Big Mistakes People Make During the Home Buying Process
After you qualify for a home loan, you may feel a sense of relief. You made it! All that hard work to save the down payment and make sure your credit score is good has paid off.
Keep in mind that until your mortgage has closed, your approval is still under review. Check out these four common mistakes people make during the home buying process to avoid unknowingly sabotaging your own mortgage approval process.
1. Applying for New Credit
After you've put in all this effort to build your credit score, you might be tempted to use it to your advantage by applying for new credit. Maybe you're ready to upgrade to a new car, or you want to apply for a store credit card to purchase new appliances to go with your new home.
It makes sense to use your credit score to your advantage, but applying for new credit accounts is one of the big mistakes people make during the home buying process because it is a red flag to your lender.
Your lender can, and almost certainly will, pull your credit again at the end of the escrow period. New credit applications will show up on your credit report and may change your approval status. Opening new credit accounts often lowers your credit score.
If you'd like to open a new credit card or auto loan, just wait until your mortgage has closed to avoid sabotaging your home loan process.
2. Making Large Credit Purchases
Much like applying for new credit, making a large purchase with a new or existing credit account is one of the big mistakes people make during the home buying process. It makes sense that you want to buy things for your new home. Maybe you found the furniture you've been picturing for that new living room or your excitement about having a man cave for the first time is tempting you to put a new TV on your credit card.
Press pause of those large purchases until after your home loan has closed. The last thing you want to do is change your debt-to-income ratio, utilization rate, or credit score in such a way that you no longer qualify for the home you are so excited to furnish.
Additional: Where should you live when you move?
3. Switching Jobs
A major component of the mortgage qualification process is your employment. You submitted your pay stubs, tax returns, and proof of employment to prove your ability to pay your mortgage. Changing jobs before closing is one of the biggest mistakes people make during the home buying process.
Even if the new job you are contemplating will pay the same, or even more than, your existing job, it will require your lender to start over with your income and employment verifications. This will certainly cause a delay, and may even cause you to lose your home or the interest rate you were initially offered.
Of course, there are some cases where a job change is out of your control. However, as much as it depends on you, put off any job changes until after closing.
4. Making Large Deposits without a Paper Trail
One of the biggest mistakes people make during the home buying process is making a large deposit without a paper trail to explain it. In other words, a cash, check, Venmo, PayPal, or Cash app deposit that is unexplained will show up on your bank statements as a red flag to your lender.
Shortly before closing, your lender will want to see your bank statements again to verify assets. If the large deposit is a gift, your lender will likely require a letter verifying this. Otherwise, this deposit may look like a personal loan, and it may change your debt-to-income ratio or another aspect of your financial situation. The bottom line is your lender will need to see why this large deposit was made, so make sure you have the documentation to explain it.
When you're ready to buy or sell in the Park City Real Estate market, know you have a professional, a friend and an experienced local by your side the entire time. Call me any time for expert buyer representation in the Heber Valley.