As you choose the path that leads to the home of your dreams, you can take either a pleasant Sunday stroll in the park or a gut-wrenching tiptoe through a minefield.
Here's the list of the eight most-important "don'ts" when you're considering buying a new house.
Don't go it alone. It's wise to have your own buyer's agent. Don't rely on the seller's real estate agent, no matter how nice they may be. Remember, that agent's loyalty is to the seller first. Shop for an agent experienced in representing buyers, especially if you plan to look at homes for sale by the owner (FSBO). That owner may not know about restriction and disclosure laws, may "conveniently" forget them, or may simply not care about them. Buyers' agents often have abbreviations on their business cards as ABR (Accredited Buyer Representative), CBR (Certified Buyer Representative), or CEBA (Certified Exclusive Buyer Agent). The secret is to retain the agent before the search starts!
Don't go buying a lot of junk, or even quasi-junk. Draining your savings or running up credit card debt to buy a new living room set, a big-screen TV, or a new car could make a difference in your interest rate and whether you even qualify for a mortgage. Avoid spending money until after the closing is completed, whether by credit or cash. Keep your debt down and as much money in your bank account as possible. The lender will check bank and credit card account history.
Don't change jobs. Unless it can't be avoided through such things as drastic location changes, experts say it is best not to change your employment picture until after closing. A worse move is to change from a salaried position to self-employment. Lending institutions like to see steady employment and generally insist that self-employers show a minimum of two years of successful income.
Don't mess up your credit. Don't go running around "fixing up your credit" without talking to a professional. For example, you may think you're going to bump your score up a few notches by canceling credit cards, but canceling the wrong ones for the wrong reasons can seriously damage your credit score. Credit experts say it's important not to have too few or too many open credit accounts, and the best credit is old credit. Another possible pitfall is to transfer all your credit card balances to one card to get zero balances on the others. Your credit score will actually be higher in most cases if your balances are spread out across several cards.
Similarly, don't pay your bills off -- at least not all of them. Paying credit
cards down to below 50 percent of the your credit limit is generally helpful to
boosting your score, but paying off all your debts is only wise if you still
have enough cash when it's over to take care of your down payment, closing
costs and prepays. In other words, don't deplete your savings to pay off your
credit cards.
Don't make any large deposits or transfers. Today, many banks require an explanation and proof of source of funds for any large non-payroll deposits that are listed on a bank statement. What is deemed a large deposit is largely determined by the underwriter and can be as low as a few hundred dollars. The reason for the underwriter's concern is that an applicant may be borrowing money from individuals, or accepting money from an interested party to the transaction, to help with the settlement costs.
It's easy to see how this bank requirement can create a lot of frustration, especially for people who are used to moving money between their accounts, which many of us do today. The key thing to remember is that anyone applying for a mortgage should avoid transferring money between accounts or making large non-payroll deposits during the home buying or selling period. While that may feel like an inconvenience, the time and headache you'll save yourself from having to account for all your deposits will be worth it.
Don't think about lying. Lenders want to know how much cash you have to put into the house -- truthfully. If you're borrowing the money for a down payment and have to pay it back, it will have an effect on your ability to meet all your obligations. If it's a gift and doesn't have to be paid back, that's fine. Whatever you do, don't borrow it from your uncle and tell the mortgage banker it's yours -- the bank may ask you to document how long you've had it in that bank and where you got it from. A lie could backfire and ruin the whole deal.
Don't do any spring cleaning. Don't throw out bills, bank statements, or tax returns. A better idea than cleaning out is organizing all of your important papers that may be requested by a lender. Such documents my include: W-2s, 1099 income statements, recent pay stubs and tax returns for the past couple of years if you're self employed. While you're at it, round up your prior title insurance policy, any canceled checks, settlement statements, or other forms of proof that you paid collections or disputed accounts.
