Buying a house is an exciting time. When you find that perfect home, the adrenaline rush of starting a new adventure, creating new memories, starting a family or simply starting over can overtake the senses.
The most critical step in ensuring you can buy that house is securing a mortgage. Of course, the first step, before you even begin house-hunting – is to get a mortgage pre-approval so you know what you can qualify for.
So, assuming you’ve got your pre-approval and you’re on the hunt for that perfect home, remember that a pre-approval is not a guarantee.
A pre-approval considers your financial situation and credit history at that point in time. Any change in your finances between that point and the time when you apply for a mortgage can have a significant impact on not only the amount you qualify for, but whether you qualify at all.
Follow these 10 Commandments when applying for a mortgage to ensure you don’t lose out on your dream home.
- Thou shalt not change jobs, become self-employed or quit your job.
- Thou shalt not buy a car, truck, van…or any vehicle (or you may end up living in it!)
- Thou shalt not use credit cards excessively or let current accounts fall behind.
- Thou shalt not spend money you have set aside for closing costs.
- Thou shalt not omit debts or liabilities from your loan application.
- Thou shalt not buy furniture.
- Thou shalt not originate any inquiries into your credit by applying for a credit card or personal loan.
- Thou shalt not make large or cash deposits without checking with your loan officer.
- Thou shalt not change bank accounts.
- Thou shalt not co-sign a loan for anyone.
To illustrate, let’s take a look at what happened to one of my clients about seven years ago. We’ll call him “Jim”.
Jim was in the market for a new home for his growing family. He had been pre-approved for a mortgage, subject to two conditions:
- Sell his current home, and
- Pay off any outstanding debts (credit cards, etc.)
He worked tirelessly to fix up his current home to prepare it for the market and paid off the required debts. He found several homes that he wanted to buy, but he had to sell his house first. (It was a different market back then!)
His home didn’t sell right away, so he decided to wait a year and then try again. Shortly afterwards, he bought himself a Harley Davidson.
Today, Jim is still in the same home.
The excitement of a new home can get us into a bit of a spend-happy mode as we start planning for things to furnish or complement our new life. Or, as in Jim’s case, we make another big purchase while we wait or delay our buying decision. Either way, we risk impacting our pre-approval.
Until you have your mortgage secured and keys in hand, financial restraint is critical.
Have questions about what you can and cannot do during the buying process? Get in touch with me to discuss.