5 Mistakes to Avoid Before Buying a House (or Closing on Your Mortgage)
Buying a home, especially your first one, is an exciting time in your life. There’s freedom and a sense of accomplishment in owning a home, but there are a few mistakes that you may make before buying a home.
These mistakes can lead to you not being approved for a mortgage even if preapproved.
5 Mistakes to Avoid Before Closing on Your Mortgage
Homebuyers can do almost everything right in their journey to buy a home, but one wrong mistake can interrupt the entire process. A few mistakes that you’ll want to avoid are as follows:
1. Don’t Make a Major Purchase Before Closing
Before closing and looking at your debt-to-income ratio, one of the worst things you can do is make a significant, charged purchase. For example, some people will apply for a mortgage, be in the middle of the process and then go out and purchase a car that adds $400 to their debt every month.
If you’re close to the debt-to-income ratio maximum, often 43% for a conventional loan, this purchase can stop the mortgage from being approved.
However, if you pay for these items in cash, that is acceptable.
2. Don’t Rack Up Debt
Credit card debt adds to your debt-to-income ratio, and while saving for your home, don’t forget to avoid charging items to your credit card. Maxing out your card can also reduce your:
- Financing options
- Chances of a low-interest loan
- Credit score
Instead, keep your credit balance the same as when you applied for the loan, and ideally, lower your credit utilization rate before applying for a mortgage.
3. Don’t Wait Until You Have a 20% Down Payment
If you look at the current housing market, people that were saving just a little more to have a 20% down payment to remove their private mortgage insurance (PMI) costs lost out on far lower home prices.
Waiting additional years to get into a home to reduce the 0.5% – 1.5% PMI costs per year may not be your best option.
Always take the time to consider your down payment options. You may be able to get into your first home with a 3.5% down payment, or you may qualify for down payment assistance.
4. Avoid Quitting or Changing Careers
Lenders want security, and changing or quitting your job can create lending issues. The general rule of thumb is that a lender will want to verify that you have a consistent employment history, so aim to apply for a mortgage when you’ve been in the same position for at least two years.
5. Don’t Skip Over the Preapproval
Lenders will offer a preapproval for your loan. While a preapproval isn’t a commitment to a mortgage, it is a good indicator that you’ll be able to complete the mortgage process with little-to-no issues.
However, you want to keep your debt the same or lower until you’ve closed on the mortgage.
Preapprovals are also a great option when bidding on a home. The preapproval shows a seller that you’re serious about purchasing the house and will take your bid before someone else’s bid if they haven’t been preapproved.
If you can avoid these mistakes before buying a home, you’ll make the homebuying process much easier.