Buying a home is typically the single largest purchase a person or couple will make in their lifetime. And it is often a complicated process with terms or concepts that you might not be familiar with: pre-qualify, pre-approved, closing costs, points, title insurance, escrow. First-time home buyers have to learn a lot in a short amount of time.
One thing that is vital to understand when buying a home is your credit profile. This is what lenders will look at to see your history of borrowing and repaying loans, and your current level of debt and other financial commitments. Improving your credit score is an important step to take in the months before you begin looking for a new home.
It’s important to note that even though you may be approved for a mortgage, your lender will check your credit profile again just before settlement. It’s vital that you maintain your credit rating right through the settlement on your new home.
Do this before you buy a house
Do hold off on buying a car or making any other major purchases. Resist buying new furniture to go with the new house. You may be more than able to afford the purchase, but a major change in your savings or your debt load could impact your mortgage application.
Do keep your debts in check. Any increase in your debt-to-income ratio could jeopardize your loan approval.
Do make all your credit card payments on time. Now is not the time to be late on one of your bill payments. It can get very busy just before a move, and it is easy to miss a payment. Your lender wants to see that you have a solid history of making payments on time.
DON’T DO THIS BEFORE YOU BUY A HOUSE
Don’t apply for new credit, of ANY kind. Applying for credit can lower your credit score. Even a credit inquiry can affect your credit profile so if you are tempted to accept the offer a new credit card from a local retailer, resist until after your home is purchased.
Don’t close any credit accounts, even if you have cards you don’t use. It may sound counter intuitive, but it’s important to understand that closing a credit card can change your credit utilization ratio, the percentage of available credit you are using. Closing a card or two from your total cards changes that ratio and can give your lender pause.
Don’t make a career move. Changing jobs might mean a raise or a promotion, but it can complicate your settlement. Your lender will check your employment status to verify employment. Keeping your income steady without any major changes is better for the time being.
So congratulations! You’ve been approved for a mortgage on your new home! The elements that led to that approval need to remain constant through settlement so that everything goes smoothly. Before you know it, you will be enjoying home ownership!
Author: Carla Olivo has garnered numerous TV industry awards including the Associated Press award for Spot News Reporting and Documentary Reporting. She lives in Northern Virginia with her husband, a retired USMC Lt. Colonel, and their two children.