Buying a Home – Do’s
Save down payment money before you act on buying a home
- The first thing you need to do before buying a home is to have down payment money saved up. For any common loan, you will need money showing in your bank account, and sometimes more showing than the minimum down payment requirement which is called *reserves. You will not be able to get pre-approved if you do not have down payment money. If you do not have down payment saved, your other option is to accept a “gift” from a relative. This means a relative will gift you funds, which then you will have to source those funds with a letter and extra documents. Gifts can make your loan process more risky when going through underwriting.
- USDA and VA loans offer 0 down payment options, but even when using these options it helps and is sometimes required to show *reserves in your account.
- *Reserves are extra money showing in your account on top of your down payment money. It is typically required for lower credit scores. A common reason for needing reserves is having a lower credit scores, which lower scores suggest that you are not a good borrower so the reserves act as an insurance policy to show you have extra funds in case any extra costs were to pop up.
Check you credit history for any issues or errors
- Be familiar with your credit history. I would suggest pulling your credit as early as a year in advance of buying a home. This will give you time to fix any issues or errors that may pop up. It could be anything from late payments or collections, to accounts being reported incorrectly or fraud. Checking early could be the deciding factor whether you qualify for a loan or not. Plan ahead!
Before looking at a home with a realtor, get pre-approved
- Realtors will not take you to look for a home before being pre-approved. This is because the pre-approval letter confirms the maximum amount you will be able to qualify for and a realtor simply will not take you to see a home that is above your max limit. This will help you avoid getting your hopes up on buying a home you cannot afford and also stops you from wasting your time and the realtors time.
Have a paper trail of funds going into your account
- Make sure the funds in your bank accounts are consistent and traceable. If you have random deposits of money going into your account, it will raise red flags and possibly stop you from getting the loan. The cleaner your funds are showing in your account, the cleaner the process will be towards acquiring your loan and buying a home!
Provide requested documents from you mortgage professional in an organized and timely manner.
- It is important to get these documents over to your mortgage professional in order to get your loan closed on time. The longer you wait, the better chance your close date will be delayed or worse, the seller can cancel the contract and sell to someone else because the process took too long for them. You may also have extra documents requested by the underwriter throughout the process so it is important to get the original documents sent quickly. That way you will not be overloaded with items you need to gather and send over to be reviewed. Organize your documents, make sure they are legible, send all pages of each type of document, and get them over as quick as possible!
Buying a Home – Don’ts
Make any major purchases or open new lines of credit
- Issues will arise after making a major purchase that requires loan payments or using money in the bank account(s) that you documented for you down payment. Things like buying furniture, opening a new credit card or buying a new car, all these things will effect your loan. A home loan is the hardest loan to qualify for. Wait to make these purchases till after you close on your home loan!
Change or quit your job
- It is important to prove a consistent flow of income in order to be approved for a loan. Keep your job!
Make large deposits of cash or move cash around between accounts
- Any large deposit or moving of cash between accounts will need to be sourced. Doing this will require you to provide extra documents to map out the transactions. Even then, it is not guaranteed the sourcing will be accepted.
Pay off debts or collections during the process unless instructed to
- When you are already pre-approved and looking for a home, you do not want to pay off debts or collections unless told to do so by your professional. This can effect your credit score or take away down payment money you need to have showing in your account. Listen to your mortgage professional!
Pull credit too many times
- It is fine to have your credit pulled 4-5 times by different mortgage companies, it just shows you are shopping around. When you have it pulled an excessive amount of times is when it will have a negative effect. This tells the credit bureaus that you are being denied for a loan and you keep trying other companies. Also having it pulled by different industries (car, credit card, etc.) within the same time frame is even worse. These things will hurt your chances of qualifying for a home loan.