5 Home Buying Blunders to Avoid

In today’s world, it is more difficult than ever for consumers to qualify for a mortgage. Bank underwriting standards tighten every day, and documentation requirements are extensive and thorough.

If you are in the market to buy a home, getting pre-approved for a mortgage is one of the first steps to buying a home. However, a pre-approval doesn’t guarantee that you will ultimately get the financing if you have any change in your circumstances between the pre-approval application date and your loan closing.

It is surprising what some people will do after they get their loan approval that can potentially derail their financing and ultimately cause a mortgage denial. I remind my clients early on about these potential home buying blunders to avoid, and I hope you also take note of these things. Don’t make these mistakes!

Blunder #1: Making credit purchases after loan application, prior to closing on the home.

This one seems to be a no-brainer, but it happens. Whatever you do, do not apply for any new credit between your loan application date and your closing. This is not the time to buy new furniture on a 0% financing plan! The new credit line could affect your credit score or debt-to-income ratio, or both, and could potentially lead to a mortgage denial. If you must make a purchase, talk to your mortgage advisor first.

Blunder #2: Paying off collections

This blunder is also related to your credit score. It doesn’t sound logical, but paying off a collection account that is older than 12 months will likely cause your credit score to go down. That’s because although the account is paid off, it is still a negative item, and any accounts with more recent activity, positive or negative, will affect your credit score more than an account that has activity further in the past.

The only exception to paying off a collection is if the creditor agrees, in writing, to completely delete the account from your report if you pay it off. Even still, it’s best not to pay off the account if you already have a mortgage pre-approval, it’s best to leave everything regarding your credit alone because lenders may re-pull your credit once you are under contract, especially if there is a lag of more than a couple months between the initial application and when you go under contract on a home.

Blunder #3: Larger than $500 non-payroll deposits into your bank account

This is the most common home buying blunder that I see. Any non-payroll deposits into your bank account within 60 days of closing must be “sourced.” In other words, you need to show where it came from and that it was your money. This is most commonly a problem with people have “mattress money” or cash that they intend to use toward their home purchase. Cash can’t be used unless you deposit it into your account greater than 60 days prior to closing. If you have any funds to deposit, do it before your pre-approval application and if after, inform your lender.

Blunder #4: Changing jobs

Sometimes of course, changing jobs is necessary. However, if you intend to change jobs, or worse yet, you lose your job after your pre-approval application, inform your lender immediately. If you want to make a job change, the best policy is to wait until after your closing. However, a change within the same field is usually acceptable with an increase in pay and an explanation as to why the change was made. If you get a job offer that is too good to pass up, by all means take it, but discuss with your lender first. If you lose your job, and are able to find work in the same line of work within 30 days, you should still be approved for your financing.

Blunder #5: Making an offer on the first home you see

My wife and I made this mistake on our first home. We looked at two homes and made an offer on the second home we saw. Although the house was great, we wondered for years if we made the right decision and should have looked at more, or could have gotten a better deal. The best policy is to view at least 10-12 homes, even if you fall in love with the first one you see. Get a good sense of the market, and then come back to the first and make sure. You may be surprised at what else is out there and find something you like even more.

Good luck with your home search. Hopefully this article will help you avoid these home buying blunders!