Avoid These Buyer Mistakes

Before the purchase!

Moving Money Around.

Lenders are concerned about the source of funds for your down payment and closing costs. You’ll likely be asked to show proof liquid assets, including checking and saving accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.

If you’ve moved money between accounts during that time, there may be large deposits and withdrawals in some of them. The mortgage underwriter may require a paper trail of all withdrawals and deposits making you to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.

Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.

So leave your money where it is until you talk to a loan officer. Oh… and don’t change banks, either.

Changing Jobs.

Changing jobs can negatively impact your ability to buy a home. This is especially true if a large portion of your income comes from bonuses, overtime or commissions. Switching jobs creates uncertainty about future earnings. Lenders rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses. Then they’ll average your bonuses over the last two years in calculating your income.

If you’re considering a change to self-employment before buying a new home, you may want to consider buying the home first. Again, lenders like seeing a two-year track record of self-employment income before approving a loan. Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment. While it reduces your tax obligation to the IRS, it also reduces your income to qualify for a home loan.

Making Large Purchases.

Don’t do it. When determining your ability to qualify for a mortgage, a lender looks at your "debt-to-income" ratio. This is the percentage of gross monthly income (before taxes) you spend on debt. This includes monthly housing costs (that’s principal, interest, taxes, insurance and homeowner association fees if any). It also includes your monthly consumer debt, including credit cards, student loans and car payments. Any large purchase can negatively affect your “debt to income ratio” making it more difficult to qualify for a loan.