5 Mistakes to Avoid If You're Planning To Buy A House
Many home buyers have learned the hard way that there are definitely some missteps that can keep you from closing on your dream home. So, to help our clients avoid these painful errors, we've pulled together a quick list of the most common 5 mistakes to avoid if you're planning to buy a house.
If you're getting ready to buy a home, don't file last minute credit report disputes unless your loan officer advises you to do so. Quite often inexperienced buyers will make the mistake of disputing an old, dormant collection showing up on their credit report. Unfortunately, this can be a little like "poking a sleeping bear." Particularly, if the debt is valid. Negative items on your credit report are removed automatically after 7 years of inactivity. Disputing a debt can re-activate it and restart that 7-year time clock! It's best just to leave that old stuff alone, especially if you're already working with a lender to obtain a home loan. Now, if a new credit item that DOES NOT BELONG TO YOU suddenly appears on your credit report, of course a dispute may be in order regardless of where you are in the home buying process. But before you file those official disputes, make a quick call to your lender or loan officer to discuss how this might affect your upcoming home purchase.
One of the key mistakes to avoid if you're planning to buy a house is opening new credit accounts of any kind before your closing. Imagine it's Christmas and as you stand at the checkout lane in your favorite department store, the clerk is offering your a big discount to open a store line of credit. DON'T. Same goes for buying that new or newer car when the old one starts acting up during your home search. Just. DON'T. Remember, any new debt can impact your approval amount and even jeopardize the approval entirely. New debt could also affect your upcoming closing if you have a home purchase in a pending status. If you want to open new credit lines or make a big purchase, wait until AFTER you've closed on your new home.
Co-Signing for Someone
Don't co-sign ANYTHING. This is another of the most common mistakes to avoid if you're planning to buy a house. Don't co-sign another person's debt or contractual obligation. This includes loans, credit cards, credit lines, rental leases, business contracts and other such legally binding agreements. Because these things are potential financial liabilities for YOU, the bank considers them as part of the approval process and when setting your borrowing limit. If you must co-sign for something, do it AFTER you've closed on your new home.
Student Loan Debt
Student loan debt counts, even if you're not paying on it right now. That student loan debt that's in deferral, forbearance or on a low income-based-repayment plan must be paid off eventually. And it's probably going need to be cleared up sometime in the next 30 years, while you're paying on your home. That's why the bank considers those accounts as part of the approval process and when determining your loan limit. When they're calculating your Debt-to-Income Ratio, or DTI, the banks are including the payments that will need to be made on your student loan debt. (And you should also be considering this when doing your own calculations to determine how much home you can really afford!)
Don't cash out or borrow against your retirement accounts. Another item on the list of common mistakes to avoid if you're planning to buy a house, messing with your 401k can really hurt you in the home buying process. Retirement accounts are another indication of your financial health and abilities. That makes it another crucial piece of the puzzle for your lender, and making changes these accounts while you're trying to buy a home could cost you your approval or stop your home closing right in its tracks!