The housing inventory is flush with choices. Interest rates are at record lows. And you're ready to buy a house. There is likely just one thing standing between you and home ownership: Getting a lender to approve your mortgage. Here are eight ways not to sabotage your plans.
1. Don't quit your job or decide to become self-employed.
Lenders want to see stability of income. The more stable you are, they reason, the less likely you are to default on the loan. You might even defer switching jobs to another company until you close escrow. If you do change jobs -- even if it's to a better-paying one -- lenders are going to look a little harder at your application. They will likely ask to see a job offer letter plus at least a month of pay stubs if you switch employers. It's way preferable to just keep hating your boss for a little longer.
2. Put off major purchases, especially if they involve financing.
This means don't buy a car, new furniture, a boat or motorcycle. Keep credit card balances down. If you want a house, you need to keep your debt-to-income ratio low. Wait until after you move in to buy the toys.
3. Don't open any new credit cards.
Not even the retail cards that offer you an enticing 15 percent or 20 percent off on your day-of purchases. Those store cards are the quicksand that will sink you into renterdom forever if you aren't careful. The major credit-scoring companies ding you a few points for each new card you open and often ding you again for those cards recently opened.
4. Don't be late on your credit card payments or anything else.
It seems obvious to say this, but your credit score will suffer if you pay your bills late. Establish a system where you sit down and either write checks or pay your bills online at least once a week.
5. Don't make large deposits into your bank accounts at the last minute.
If rich Aunt Sadie or Mom and Dad are helping you out with the down payment, get the money into your accounts at least two months before you apply for a mortgage. Lenders like the money to be what they call "seasoned" and not appear out of nowhere.
6. Don't offer to help a friend or baby brother out by co-signing a loan.
Even if you won't be making the payments on that loan, it increases your debt-to-income ratio -- and is a bad thing. You want to be carrying the least amount of debt possible when you apply for a mortgage. And keep in mind, when you co-sign a loan, you are saying that you will be financially responsible should the signer fall behind in payments.
7. Limit the hard pulls on your credit reports.
A hard pull is when a third party, with your permission, checks your scores for the purpose of lending you money. If you are shopping for a loan, lenders will make a hard pull. Make too many of them, and your scores go down.
8. Don't lie on your application.
Another no-brainer, right? But after about a decade of no-doc loans, where we put down whatever the lender needed to hear on the application and were never asked for proof of anything, it's important to realize how much things have changed. Lenders today request evidence for everything you state. We know of one applicant who was nearly rejected because he failed to copy the last page of his monthly bank statement -- the one with the boilerplate disclosures on it. Don't inflate your income or forget about any debts.
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