Buying a home is likely the biggest purchase you’ll make in your lifetime, so it makes sense that preparing to buy one takes a little longer than most other purchases. With that being said, there are several mistakes you should avoid if you hope to purchase a home in the next few months.
Not putting together a savings plan.
While you don’t need 20 percent down to buy a home, you do need to have some cash set aside. Even if you do qualify for a zero or low down payment loan option, you’ll need some funds for closing costs.
Closing costs typically range from 3 to 5 percent of a home’s purchase price. If closing costs are a hurdle for you, talk to your mortgage banker about the possibility of a lender credit.
Making late payments here and there.
Payment history accounts for approximately one-third of your credit score. Just one 30-day late payment could clip 60-100 points from your score. Now is the time to be adamant about paying all of your credit cards on time.
As a whole, making a job change doesn’t entirely affect your homebuying plans unless it changes the mode in which you’re getting paid. Your mortgage lender uses your income to determine affordability of a new home alongside your other debts. A debt-to-income ratio is relatively uncomplicated to determine if you have a steady, predictable income like hourly or salary-based.
If you’re switching to a commission-based or self-employed job, you’ll need to provide an extended history of income to prove sufficient revenue over time. This may push your homebuying plans further into the future.
Buying now, paying later.
When you go to get a mortgage, your lender will not only look at your credit score but also your debt-to-income ratio. Though you don’t have to stop using your credit cards altogether (or carry zero balances for that matter), if you lean hard on plastic, you may find your debt-to-income ratio is too high for homes in the price point you want.
Opening up new lines of credit.
Whether you found a credit card with better reward options or you really want to get 40% off your purchase at a department store, now is the time to stop applying for new lines of credit. Every time you open a new card, it puts an inquiry on your credit report and dings your score.
On that note, don’t go closing unused credit cards either. By closing an account, you’re shortening up your credit history and lowering your available credit, both of which can drop your score.
To learn more about the do’s and don’ts of applying for a mortgage, download our free Mortgage 101 Handbook for everything you need to know about the homebuying process.