Once you find the perfect home, secure financing, and sign the contract, you may be ready to pop open some champagne and start picking out curtains. Be careful, though. There are several mistakes you may make as a would-be homeowner that will derail a closing or drive your interest rate higher.
1. Change in job status
Mortgage lenders want stability, and if you show them you're changing jobs at such an important time in your life, they may think your financial status is unstable, and think twice about offering you a mortgage.
A change in job status from part time to full time is fine, but not the other way around. Going from employee to contractor, or salary to commission, is just not a good move.
If you're moving to a better job with a higher salary, the change won't torpedo your closing, but it still might delay it. You will still be required to show new paystubs, even if you're moving to a much better job.
Changing positions within the same company is not likely to raise red flags as long as your salary doesn’t decrease.
2. Making late payments of any kind.
Payment history makes up 35% of your credit score. It is the single most important factor in calculating score. Missing a payment, forgetting a payment, or just not making a payment during this time could cause serious problems. Just 1 late payment could dramatically decrease your score and make you ineligible for a loan.
3. Having too many unnecessary credit inquiries
Every time a lender makes a credit inquiry — when they pull your credit report — it affects your score. Historically increased inquiries equates to increased risk, which is why this is a component in FICO’s credit score calculation. If you're moving into a new home, you may be more tempted to apply for store credit cards to save 10% to 20% on expensive items such as linens, furniture, and home décor, but don’t do it!
4. Taking on debt
The amount of debt you carry makes up 30% of your credit score. It is almost as important as payment history. I know it is tempting to get a new car to park in the drive of your new home, or the “no payment/no interest” furniture specials to fill your beautiful new home, but this increase in debt could also decrease your credit score. Furthermore your mortgage approval was also based on a debt to income ratio. These new purchases could throw that out of whack, ruining your chances for that new home. Wait until after the loan is completed before you go shopping for these major purchases.
Remember, when you apply for a mortgage, the first credit check your lender runs won't be the last. Another credit check is performed just before you close. If there are negative changes in your credit score, you could be saying goodbye to your dream home before you ever put the key in the door.