Credit DONT’S When Buying a Home

Most people obtain a mortgage when buying a home.   Many people get caught up in the search for properties and give little thought to the mortgage processes as they know they have good credit and feel that wont be any problem.  It’s a great thing that you have valued your credit rating and know that you are in good standing to purchase a house, but obtaining a mortgage can sometimes still throw you a curveball at the most inopportune time. 

Obtaining a Mortgage Is Not Easy

Even with an outstanding credit history, the days of simply filling out a couple forms and getting a mortgage on your new home are long gone.  Since the credit bubble and subsequent crash, some have said “the only way to get a home mortgage is to prove you don’t need one”.   That is being a little facetious, but holds true on many levels.  Its important to start the mortgage process early in the home purchase process as it will most likely take longer than you expect.  The average closing is “extended” 1.5 times because of obtaining the mortgage.   Even with an outstanding credit rating, you will be asked for a multitude of documents, some that seem a little crazy, by your loan originator. 

Be ready to deliver even the most ridiculous of documents in a very timely manner to not delay your closing.  Even with the greatest of credit scores, there are still some things that should be avoided as they can substantially disrupt the mortgage process. The statute of limitations in Texas for debt is quite consumer-friendly. If you have old debt, it is good to know the state law.

What Your Should NOT Do When Purchasing a Home

• Don’t apply for new credit cards during the mortgage process.   Trying to obtain new credit, in many instances, can indicate a higher risk to the bank and can potentially lower your credit score.  Once you have made your loan application, steer free of applying for any additional credit, even if it appears to be harmless.  That means when you are visiting the local Best Buy – and they offer you a discount on that new flat screen TV if you apply and use their 12 months same as cash option----you need to decline.

• Don’t move your debt around. The best way to improve your credit score is to pay down your revolving credit instead of moving it around. Once you have applied for your mortgage and they have run your credit, you want to keep everything as still as possible; unless of course you are paying off revolving credit cards.  Don’t pay off a higher rate card with a lower rate card (even though that is great advice) during the mortgage process.  Once the underwriter looks at your credit, you want them to feel secure in that picture staying consistent.  Needless to say, if your loan originator requests a particular debt move, you should take their advice.

•  Don't close zero balance credit cards in an effort to raise your score. Closing an account doesn't make it disappear from your credit. Once again, you want to keep the initial credit report that was run as consistent as possible throughout the mortgage process.

•  Don't open any new credit cards, to increase your available credit.  Increased available credit means that if that card were to be maxed out (which can happen very quickly), you would have a larger monthly debt to pay, reducing the amount of funds available for the home purchase.

•  Don't make any large purchases.  One thing that can substantially disrupt the mortgage process is a large purchase such as a new car.  Even if the purchase is made in cash, it can potentially harm you obtaining a mortgage.  Keep in mind, any new credit purchase brings with it a new monthly debt and affects your debt to income ratio.

 
•  Don't change lenders at the last moment.  Although you may get frustrated and want to change lenders at some point in the process, that can substantially slow down the home purchasing process.  Choose your initial lender wisely as its best to stick with them throughout the process.  Changing lenders at the last minute can cause you to request an extension of the closing, of which the seller has the option of accepting or denying.  In most instances, they will allow a couple day extension of the closing, but you have moved the leverage of the sale into their favor.  All extensions need to be in writing and signed by all parties.

•  Don't change jobs.  This one may seem like a no-brainer, but we have seen best intentioned home buyers change jobs during the mortgage process.  This is a major hurtle to overcome even if the new job pays more.  Changing employers indicates that the picture of your financial well-being changes in a movements’ notice. 

Things To Keep In Mind

It’s important to understand that the lending institution who is providing you with the loan and subsequent mortgage is taking on (usually) a 30 year repayment plan.  To see if they should take that level of risk, they are looking at a snap shot of your credit history.  They are looking for consistency.  Any major change can ruffle their feathers and put the purchase of your new home at risk.  If some instances your lender may ask you to make some adjustments to your credit (pay off a card, close an account etc.)—those requests are usually good advice as that indicates you have some level of a deficit on your credit and you need to remedy that situation.  Those corrections can take time and remember the lending institution is looking for consistency.  Some lenders promise the world upon your first meeting only to get you on the hook, then drop the ball when it really matters.



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