You’ve made a strong offer with your Realtor® it’s been accepted. Congratulations!
But don’t get excited just yet. Oftentimes, buyers make mistakes that can jeopardize the sale.
Here are some tips to help you avoid mistakes and purchase with confidence:
1. Be Proactive and Avoid Credit Surprises
Many consumers will go years without ever checking their credit report and will fail to notice inaccuracies. In addition to credit report mistakes, mortgage lenders have difficulty providing a loan when faced with these credit report issues:
- Late payments to creditors – this is the hardest item to clean up from your credit report. It can take seven years to have a late payment that was accurately reported removed from your history. Avoid late payments like the plague!
- Creditor closes your account without reporting it “Paid in Full.”
- Unbeknownst to you, the movie you never returned to the video store, or the grossly overdue library book has been handed to a collections agency.
- Another borrower’s debt is linked to you because of a typo in the SSN.
Solution: Stay on the straight and narrow with your creditors and keep a watchful eye on your credit report.
2. Don’t Buy Until the Keys are in Your Hand
Your offer has been accepted and you eagerly buy home appliances for the new home. Thousands of dollars are spent on outfitting your new kitchen using money you’ve kept in reserves, or worse yet, a new line of credit was opened.
The problem is that lenders will pull your credit twice during the loan approval process. A sudden drop in available monies or a new line of credit may cause lenders to get nervous about your money management skills.
Solution: Avoid making any large purchases while applying for a loan and shop ’til you drop once you’ve received the keys to your new home.
3. Don’t Touch that Line of Credit!
As mentioned, new lines of credit or added debt to your credit report is a major red flag for lenders. But conversely, reducing your line of credit, or closing credit cards can also be detrimental. Each of these scenarios can cause a shift in your debt-to-income ratio and make you ineligible for a loan.
Solution: Talk with your lender before making any changes to your lines of credit.
4. Keep a Portion of Your Funds Liquid
During the escrow period you will need to consolidate and allocate your funds for the earnest money, ordering of inspections and appraisals, and your down payment. Avoid the stress of scrambling for money by thinking ahead.
Solution: Avoid the stress of scrambling for money by thinking ahead. Work through Phase I: The Foundation Phase in preparation for your home purchase, and make sure the total of your principal, interest, taxes, and insurance equal less than 28% of your gross income. Remember, the best time to buy a home is in Phase II: The Accumulating Wealth Phase.
Finally, talk with a Certified Financial Planner™ to make sure you can afford the purchase of a home.
Have you purchased a home? Leave a comment and tell us your home-purchase mistakes!