Are you dreaming of dressing your new home with spiderwebs, jack-o-lanterns, and scary Halloween music while you pass out candy to hungry zombies and beautiful princesses? Then be sure to avoid these mistakes during the home buying process.
Once you find the perfect home, secure financing, and sign the contract, you may think it's a done deal. Be careful, though. There are several mistakes you may make during the mortgage process that will drive your interest rate higher, or derail your closing completely.
Here are six SCARY mistakes that can turn an approved mortgage into a denied mortgage.
Scary situation: I can't take one more day of this job!
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 during the mortgage process, as long as your salary doesn’t decrease.
Scary situation: Oops, I forgot to pay that bill.
Payment history makes up 35% of your credit score. It is the single most important factor in calculating your score. Missing a payment, forgetting a payment, or just not making a payment during this time could cause serious problems. Just one late payment could dramatically decrease your credit score and make you ineligible for a loan.
Scary situation: But they said I would get 10% off!
Every time a lender makes a credit inquiry — when they pull your credit report — it affects your credit 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! This small savings is not worth risking an approved mortgage.
Scary situation: I need it, I want it, I have got to have it!
The amount of debt you carry makes up 30% of your credit score. It is almost as important as payment history. It's is tempting to fall victim to 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 is also based on a debt-to-income ratio. These new purchases could throw that out of whack, ruining your chances of a smooth mortgage process. Wait until after the loan is completed before you go shopping for these major purchases.
Scary situation: I need a new car, man!
You may fantasize about a new vehicle in your new garage, but hold up on test driving just yet. A new installment debt could skew your debt ratios in the wrong direction, and single handedly sabatage your home-buying process.
Scary situation: Help a friend out.
It may seem like no big deal if a friend or relative asks you to co-sign a loan for them. After all, they are good for it, right?
Not so fast!
Not only does a co-signed loan show up as a new inquiry on your credit report, it is factored in to your debt ratios. AND, if your pal ends up not paying on time or at all, you are on the hook for the entire debt. The answer to this is to never co-sign a loan, especially if you are in the process of obtaining a mortgage loan.
Remember: When you begin the mortgage process, 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. Avoid this situation and expand your chances of an approved mortgage by steering clear of these six scary mistakes when embarking on your mortgage process.
And, Happy Halloween!