What NOT to Do Before Buying a Home

DON’T Mess With Your Money

In order to purchase your dream house, you will most likely have to speak to a loan officer. When reviewing your loan package, the lender will be looking at the source of funds you will be using for your down payment and closing costs. Many items may need to be provided to the lender including complete recent bank statements for the past several months on any checking accounts, savings accounts, money market accounts, company 401K accounts or any other liquid assets you may have. The movement of funds between any of these accounts will be indicated by large deposits or large withdrawals.

If movement of funds between any accounts is detected, the mortgage underwriter (the person who actually approves the loan) is going to request a lot more information. You may need to produce cancelled checks or deposit receipts to establish a complete paper trail between the monies in each account. You may find this tedious, but remember that your lender is trying to ensure quality control and eliminate potential fraud by documenting the source of all funds. Even if you wish to consolidate your funds before making the purchase, DON”T. This one simple act could make it more difficult for the lender to properly document the loan. Make sure you talk to your loan officer first.

And by the way…DON’T change banks, either!

DON’T Change Jobs

In general, if you are going to earn a higher salary at a new job, changing employers should not affect your ability to qualify for a loan. However, there are some situations where a job change could make things difficult.

Salaried employees, ones who don’t earn extra income from commission, bonuses or over-time, may not be affected by a job change. Just remember to remain in the same line of work if you do switch employers. With any luck, you will be better qualified for a mortgage loan by earning a higher salary!

You should also not be affected by a job change if your earnings come from a forty hour work week without over-time, and are based on an hourly wage rate.

Difficulties may arise if you change jobs before buying a home when a large part of your earnings come from commissions. This creates a problem for mortgage lenders when they try to calculate your income. Their preferred method is to average your commissions over the last two years. When you change employers, your future commission earnings are uncertain. There is no ‘track record’ from which to obtain an average. This is true even if your job change is to a similar type product with the same type of commission earnings structure. In this case, a job change could hurt your ability to buy a home.

Another situation where it is not a good idea to change jobs is when a substantial portion of your income is based on bonuses. Again, the mortgage lenders are looking for a two-year track record in order to consider those bonuses. If you change jobs, you no longer have the employment history necessary to count bonuses as income.

Employees that rarely work forty hour weeks at an hourly wage should not change jobs. The mortgage lender has no way of predicting how many hours you will work each week at a new job and therefore cannot calculate your income. Remaining at your old job allows the lender to average your earnings.

Credit for over-time income can also complicate things if you change jobs. All employers award over-time wages differently so lenders cannot predict what your future earnings might be. If you remain at your old job, your lender may give you credit for an average monthly over-time income using your over-time earnings received in the last two years.

If you are contemplating a change to self-employment before buying a new home, DON”T do it. Buy the home first. Again, before approving a loan, lenders will be looking for a two-year track record of self-employment income. Remember also that people who are self-employed tend to incur a lot of expenses, especially in the first few years. This expense can minimize your tax debt to the IRS, but is also minimizes your income to qualify for a home loan. If you are already self-employed, hold off from redefining your business as a partnership or corporation until you have purchased your new home.

DON”T Make Any Major Purchases

The next article in this series, “Don’t Buy a Car”, describes problems that may arise if you should succumb and make a major purchase before buying your dream home. Of course this does not only apply to cars, but any purchase that would create a major debt such as furniture, appliances, electronic equipment, jewelry, vacations, etc. In other words…wait until you close on the house, then you can go out and purchase these items.