In this blog we will walk through some of the most common mistakes home buyers make and how to avoid them. Whether you are a first-time home buyer or are buying your third home following these tips will help to protect yourself and your home purchase.
#1 - Do Not Search For A Home Without Pre-Approval
Having a pre-approval letter while searching for a home is crucial to the home buying process because of two things;
- Most sellers will not allow real estate agents to show homes to buyers who are not pre-approved because they believe buyers without it might not be as serious about purchasing. More often than not, having an approval letter is a requirement in order to show a home, especially in our current market.
- You may get disappointed because you find the home you love — go to get pre-approved — and the home is either gone or you do not qualify. Right now, there is no time to wait on a pre-approval, you have to act fast on the homes that you like & to show you are serious about purchasing.
Getting pre-approved is also the only way you can really tell how much house you can afford and sets you up for success when you do find the home that you are looking for.
#2 - Don’t Finance A Car Or Big Item Before Buying
Once you find the home you like often you want to buy all new furniture and appliances for your new home. However, you want to avoid this common mistake. If new debts are added to your portfolio this could jeopardize your loan approval after the lender does the final credit check before closing.
Adding new debts can also increase your debt-to-income ratio, which makes you look less attractive to lenders. If your debt-to-income ratio is above a certain threshold, typically around 43%, then you are considered a risky borrower.
#3 - Don’t Quit Your Job Or Change Careers Before Buying
Changing your job before or during the process of buying a home is not advised as it can lead to lending issues. When it comes to changing jobs you want to especially avoid changing to a completely different field of work. For example, you would not want to go from working in marketing to working as a bartender because you will likely need 2 years worth of employment in the new field before qualifying for a loan.
Aiming for at least 2 years or more with the same employer or in the same line of work is recommended when looking to purchase a home.
#4 - Don’t Max Out Your Credit Card
You would think that this one is self explanatory, but this happens all too often. When you are in the process of buying a home you want to be sure that you keep your debt levels down. For example if you max out a credit card, the extra debt payment will offset your income and result in a much lower qualification for financing.
Also as a result of an increase in debt, your credit score will lower, which would increase the cost of your loan amount. When purchasing items during the process of buying a home try to utilize cash instead, or better yet, delay buying new items until after closing.
#5 - Don’t Move Around Your Money
Any money that comes in or out of your account could off-set your debt-to-income ratio. When a lender approves you it is based on your current financial state. Try to avoid making any major financial changes. For example, moving money around various accounts, or making large deposits because the lender will likely ask for an explanation. Instead try your best to maintain your financial state and keep your money in one place prior to closing.
Bottom Line:
Understanding what to do when purchasing a home is just as important as what not to do when purchasing a home. As you can see it can be easy to make some of these mistakes when getting a mortgage, especially when you are a first time home buyer. My hope is that with this knowledge some of these mistakes can be easily avoided.
