10 Things Not To Do Before You Buy A Home

After you’ve been approved for a mortgage for your next home, you might assume you can kick back, breathe easy, and just concentrate on packing and preparing for your move. Nope. Not yet.

It’s true that most of the hard work of building a good credit profile and accumulating savings for your down payment and closing costs is behind you. It’s also true that your lender will recheck your credit just prior to your closing date. Your lender will also verify your place of employment to make sure nothing has changed.

That’s the key phrase—“nothing has changed.” It’s critical you maintain the same credit profile that led to your loan approval until your mortgage paperwork is completely signed, and you’ve closed on your new home.

Avoid the following actions to ensure a smooth settlement:

1. Don’t apply for new credit: Since you are about to become a homeowner, it may seem like the natural next step is to apply for a credit card at Lowes or Home Depot, or to get pre-approved for credit at a furniture store. Understand that applying for credit can lower your credit score. Not only will you lose a few points because of each credit inquiry, but if you are approved for new credit, a mortgage lender may worry that you will spend up to your new credit limit and then default on your loan.
2. Don’t close any credit accounts: You might think that this is a good time to get your financial house even further in order by closing unused credit accounts or transferring your debt to a new credit card with a zero-interest balance transfer offer. While that’s a smart move financially, it’s a bad one for your current credit score. Your credit score goes down when you have a higher usage of debt compared to your limit on one credit card and to your overall credit availability. Wait until your closing is complete before you make these changes.
3. Don’t move your money around without a paper trail: Before you go to settlement, your lender will need your most recent bank statements. If you have any unusual deposits, you need to provide complete documentation regarding the source of that money. It’s best to move the cash you will need for your home purchase into one account before you apply for a mortgage. If not, ensure you have accurate and complete records that are readily available.
4. Don't make large or cash deposits into your bank accounts: Mortgage lenders like the money that will be your down payment to be sitting in your account for at least two months - what they call "seasoning" - so that the funds don't just appear out of the ether.
5. Don’t increase your debt: In addition to your credit score, your debt-to-income ratio is critical to your loan approval. If you take on additional debt, you may exceed the maximum acceptable debt-to-income ratio for your loan.
6. Don’t skip a payment or make a late payment: One of the most important elements of your credit score is your history of consistent, on-time, in-full payments. Don’t get so caught up in your move that you forget to keep up with paying your bills.
7. Don’t buy or lease a car or truck: You may feel that a new car or truck would be a great addition to the driveway of your new home. Resist that temptation. Even if you can easily afford a new car or truck, the depletion of your savings or the addition of a new car or truck payment could derail your mortgage application. Wait until after you have moved to switch to a new car or truck.
8. Don’t test the waters in another industry or become self-employed: While a job change to a completely different industry or starting your own business could mean a path to a better future, it would prevent your closing. A lender will want you to demonstrate, over a period of time, income stability in either a new industry or running your own business before they pre-approve your mortgage loan. Wait until after you close on your home.
9. Don’t spend your savings: You’ll need cash on hand at the settlement for your down payment and closing costs. Just before closing, your lender may verify your cash reserves one more time, so make sure your funds stay in place.
10. Don't change banks: Just like your employment, you want your banking history to show stability over time.

In other words, no matter how hard it is at this exciting time, it’s better to do none of the above. If you’re thinking about any of these changes or purchases, wait until after you move into your new home. You’ll thank yourself many times over as you enjoy your new residence.