Converted from paper version of the Broad Ripple Gazette (v04n07)
The Word on Real Estate - Advice from a Pro: By Clark Giles
posted: Apr. 06, 2007
Three Things NOT to do before Purchasing a Home
So you've put off buying that new home through the winter to see what interest rates are going to do, but you think the time may now be right and you are ready! Mortgage rates have stayed fairly consistent and there is a great selection of homes on the market. Here is a little advice that you will want to heed during that few months right before you find your dream home and most importantly, once you begin the financing process!
• No Major Purchase of Any Kind
Even if your car falls apart a week before closing on your new home, don't make that auto purchase yet. A monthly car payment (or any major monthly debt) affects your buying ratios and could ultimately make a difference in whether you have final approval for your home or not. Major purchases could also include furniture, appliances, electronic equipment, jewelry, taking a vacation, or paying for an expensive wedding. . . any major purchase that creates debt can affect your buying potential. You can make any purchase you want after you CLOSE on your new home. And, don't co-sign for a loan for anyone else during the loan process period. Most of the time, even after you have been told that everything is done on your loan and you are approved, there is a last and final credit report run on the buyer right before underwriting sends your loan package to the title company for closing. If something shows up that wasn't there during the loan process, you may be denied at the last minute.
• Don't Move Money Around
In making a loan application, one of the things lenders are most concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts. The mortgage underwriter (the person who actually approves your loan and is the person that your mortgage processor and banker appeals to for final approval) will probably require a complete paper trail of all withdrawals and deposits. If you have been moving money around between these accounts, the underwriter may require more documentation. You could be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious. To avoid getting exasperated at your lender, having a paper trail that doesn't have any suspicious deposits or withdrawals makes an underwriter happy and doesn't make them question your ability to be a responsible buyer. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it easier, could make it more difficult for the lender to properly document. So leave your money where it is until you talk to a loan officer. Oh. . . don't change banks, either.
• Changing Jobs Could Mean Loan Denial
For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application. My suggestion, buy the home first and then change jobs!