- Don’t Be Late on your Credit Card Payments or Charge Excessively: You need to show your stability with managing money responsibly.
- Don’t Apply for a New Credit Card: Unless your mortgage lender has advised you that this is a good idea to build up your credit, then avoid applying for any new credit cards. Looking for new credit translates into higher risks for lenders.
- Don’t Purchase a New Car: Or any other form of transportation that you’ll have to finance. This will increase your debt-to-income ratio, which is not anything that loan officers want to see.
- Don’t Change Your Job: Do not go looking for a new job during this time. Even if you’re bored at your current job, or tempted by possible pay increases from a different career path, it’s best to keep your current employment situation going during this time. This demonstrations to lenders your stability- Which means you will be less likely to default on the loan.
- Don’t Change Banks: As with your employment, you want your banking history to show stability.
- Don’t Spend Your Money for Closing Costs: You’ll likely be responsible for part of the closing costs associated with a property transaction. Make sure you have enough to pay for your share of the obligation.
- Don’t Close Credit Card Accounts: It may seem like a good idea to close one of your lines of credit after completely paying off the balance, but this is not a good idea. Closing out the credit card wipes that information away- meaning that your loan officer will not be able to take into consideration the fact that you made payments and completely paid off that card.
- Don’t Purchase Furniture on Credit: I know it’s exciting to start picking out fresh furnishings that will go perfectly in your new home, but WAIT! Like a new car, financing large ticket-items will only increase your debt-to-income ratio, and now is not the time.
- While it may seem tempting to go out and spend a bunch of money on that new TV, a fancy new couch, or furniture, your best bet is to keep that money in hand. Avoid buying a bunch of new things until you close the deal on the house itself.
- Don’t Make Large or Cash Deposits into your Bank Account: Lenders like to see that the money for you down payment is “seasoned”, meaning it has been in your account for at least two months. It doesn’t necessarily look good when funds just appear all of a sudden.
- Don’t Co-sign a loan for Anyone: Even if you’re not the person making the payments, it will still increase your debt-to-income ratio. And as we’ve learned, that’s not what lenders like to see.
Tag: home buying
If you are at that point in your life that you are ready to ditch the rental and purchase a house of your own, then congratulations!
Most buyers don’t have all the cash needed to buy a home upfront in full, so it’s not unusual to need a home loan. It can sometimes get a little confusing with the number of home loans available to qualify for, especially when you’re trying to decide what makes the most sense for you and your situation. To make things a little easier, I’ve listed the more common home loans below and a bit about each one:
- Conventional: This is one of the most popular home loans when it comes to buying a house. It typically offers the best interest rates compared to other home loans. The minimum down payment is about 10% with 20% being the standard. This option is best for those with good credit, and who are upgrading into their next home.
- FHA: The FHA loan offers affordable home ownership with a smaller down payment requirement than other home loans and has easier credit requirements than most. The minimum down payment is 3.5%. The FHA home loan is great for first time home buyers, however is available to anyone. It’s also accommodating to those with less than perfect credit. Since an FHA loan is easier to qualify for, the interest rates are not as attractive as the conventional loan.
- VA Loan: The VA loan is a mortgage loan issued by approved lenders and guaranteed by the U.S. Department of Veterans Affairs. Offered to veterans exclusively, this home loan eliminates the down payment without any risk of PMI (Private Mortgage Insurance). This type of loan is designed for properties considered to be of ‘move-in ready” condition, as well as owner-occupied.
- Adjustable Rate Mortgage (ARM): The best part about the ARM home loan is that these rates typically start out lower than any of the other loans out there. However, rates will fluctuate with the market after a certain amount of time- usually either one, two, or five years- So, it’s certainly possible that your rates could go up after that agreed time. You’ll usually be looking at a standard 20% down payment with a minimum of 10%.
- USDA: The USDA home loan was created in order to help with the promotion of purchasing rural lands. It’s best for anyone who is interested in living out “in the country” or in a rural setting, however their definition of rural is probably not as extreme as you were thinking. This loan can only be used in designated areas and towns, but luckily there is no down payment required for this one either.