Ready to Buy a Home? Here’s what not to do in the months leading up to your purchase.
If today low Mortgage rates Once you have inspired buying a home, you are probably excited to get out there and see what is available. Before you head out, learn the five things to avoid in the months leading up to your house hunt.
1. Change jobs
Mortgage lender Pay attention to stability when assessing your loan application. This also means that you have the same job for a certain period of time. Here’s a breakdown of how long lenders want you to be on, depending on the type of mortgage you’re looking for:
- Conventional mortgage: Lenders are looking for two years of work experience. If there are gaps in your employment, you must be in your current job for six months.
- FHA loans:: Just like a traditional mortgage, lenders want two years of work experience and look for six months of work if there are employment gaps.
- VA loan:: If you recently left the military or recently graduated from college, you may not have a two-year new work history. If you can show continuity between your current job and your military specialty, training, or formal education, a lender sees it as a shift rather than a “void”.
- USDA mortgage: You have to have 12 months on the job. The USDA also encourages lenders to look at two years of employment history. If you are using a retirement income, social security benefit, or any other type of income, you may be eligible for a different period.
One important thing to keep in mind is that lenders understand that people are changing jobs, especially in this economy. Continuity can be the key. For example, let’s say you’ve been a mechanical engineer at Company A for a couple of years, doing the same type of work for Company B for a few years, and now you work as a mechanical engineer for Company C. In this case, two things are clear for a lender:
- You have no problem finding a job when you need one.
- They have expertise in a specific area that is passed from one company to another.
That kind of continuity and job history isn’t necessarily a deal breaker for lenders, even though you’ve changed jobs a few times.
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2. Take on new debt
Let’s say you take a break from the rigors of house hunting and spontaneously decide that you feel better with a new car. Making a major purchase before buying a home is usually not a good idea. During the loan application, the lender will check yours Debt-Income Ratio (DTI). DTI is the amount of money you owe in relation to your monthly income. For example, suppose your gross monthly income is $ 5,000 and your monthly debt is $ 1,225. $ 1,225 divided by $ 5,000 = 24.5% (your DTI).
The lower your DTI, the more certain a lender is in your ability to repay the loan. All new debts increase your DTI and this decreases the lender confidence in your ability to repay.
3. Miss bills
Usually, you should always pay your bills on time to keep your bills off Credit score strong. The higher your credit rating, the easier it is to qualify for a low interest rate on a mortgage. If you’re having trouble paying your current bills, this may not be the best time to buy a home.
4. Borrow money
COVID-19 has left havoc, including financial problems, for millions of Americans. You may know at least a few people who are trying to find their financial feet. When asked to borrow money, it can be helpful to have an answer ready beforehand. For example, you could say, “I’m sorry. I can usually help, but I need every dollar I have to buy a house.” Buying a home is a huge responsibility and you want to keep yourself on a stable financial footing during the process.
5. Sign a loan
Have the same answer ready when asked to do so cosign a loan. If someone asks you to co-sign a loan, it is because they are not self-qualifying. There’s a reason for that. Either they haven’t had time to build a good credit rating, or they have a record of not paying bills. In both cases, you take responsibility for their behavior through cosigning. If they fail to make payments, you are legally responsible. When a lender checks your credit report, the loan you co-signed will appear as if it were your loan. This also affects your DTI.
You’ve probably heard a lot about the things that you do should do before you buy a home, but it’s often the things that do should not be done to get stable loan approval or to make it more difficult to get a place of your own. Buying a home in today’s climate can be stressful enough. Once you find the property of your dreams, don’t add to the burden by making your ability to obtain a loan more difficult.