Now that the contract has been ratified, the home inspection period has passed and everything agreed to, buyers may think that everything is smooth sailing until they close on their new home. Right? Not quite.
There are a number of other things buyers must NOT do before the final settlement date. If they’ve been approved for a mortgage, they might be assuming that all they need to worry about is moving, picking out new furniture and maybe buying a few other items like a ride-on mower, or even a new car.
But, before doing so, buyers need to think about what this will do to their credit profile.
Lenders always talk about creating a great credit profile and buyers are, for the most part, listening and are getting pre-qualified, saving for a down payment and closing costs and making sure their credit scores are top-notch.
What most buyers forget, however, is that lenders will RECHECK their credit just prior to the settlement date and will also verify such details as place of employment and available funds to close to make sure nothing has changed.
Buyers must take care to maintain the same credit profile that led to their loan approval until their mortgage paperwork is completely signed.
Below are 9 tips of what to avoid to ensure a smooth settlement:
1. Don’t skip or make a late payment: This is incredibly important to note as it can easily happen in the excitement of buying a new home, especially if it’s for the first time. Your credit score relies on your history of on-time, in-full payments, so don’t forget to keep up with paying basic bills. Make sure you also reveal any debts or liabilities in your loan application.
2. Don’t close any credit accounts: This may seem counter intuitive, as it may appear to make sense to clean up your finances by closing unused credit accounts or transferring your debt to a new credit card with a zero-interest balance transfer offer. Closing accounts will actually cause you to lose points 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 clean up your finances.
3. Don’t move your money around: This also comes into play if you have family members that are gifting you money to help with closing costs or anything related to your house purchase. A general rule of thumb, if you know you want to purchase a home, is to have your family members deposit the money into your account at least two months before you write a contract. Your lender will need the most recent bank statements before you go to settlement, so, if you have any unusual deposits, you will need to provide complete documentation of where the money came from.
4. Don’t increase your debts: Although it is tempting to purchase new furniture or fixtures before you close on a home, resist the urge as much as you can. Lenders will look at your debt-to-income ratio for your loan approval. If you take on more debt you could be in danger of going above the maximum acceptable debt-to-income ratio.
5. Don’t apply for new credit: Avoid the temptation to apply for a credit or store card at a home improvement or a furniture store when you are about to become a homeowner, because applying for credit can lower your credit score. If you are approved for new credit, a lender may worry that you will spend up to your new credit limit and then default on your loan.
6. Don’t buy a car: Unless you have no other option and your present car is in an accident or otherwise inoperable, resist the urge to add a new car to your repertoire. Even if you can easily afford a new car, the depletion of your savings or the addition of a new car loan could derail your mortgage application. Wait until after you have moved in your new home to switch to a new car.
7. Don’t change or quit a job, or become self-employed, if you can help it: While a job change could seem like a great idea if it involves more pay, it could also delay your settlement. Your lender needs to verify employment and will need pay stubs for at least two months to prove your new income before your loan can go to settlement.
8. Don’t spend your savings: You’ll need to verify cash on hand at the settlement for your down payment and closing costs. Your lender may even verify your cash reserves one more time, so make sure the funds are in your bank account.
9. Don’t co-sign a loan: If you are in the process of purchasing a home, resist the temptation to help out anyone with a separate loan. Lenders will not look favorably on your altruistic behavior.