Issue Date: July 18, 2007

Avoid These Buyer Mistakes

By Jody Zink
Licensed Realtor in Ohio & Michigan

When buying in a buyers market, showing a seller you can close quickly could give you an advantage. That means being ready to pounce when the right deal comes along, and making sure your financing is ready to go. Here's a list of what not to do.

#1. Shopping for a home before you shop for a mortgage. More than 85 percent of today's buyers start their search online. Many visit weekend open houses. While it's fun to shop that way, the smartest buyers first shop for a mortgage to finance their purchase. That way they know the maximum home loan they can get up-front and avoid disappointment.

#2. Move 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 of liquid assets including checking, savings, CDs, stocks, mutual funds and retirement accounts. If you’ve moved money between accounts, there may be large deposits and withdrawals. The mortgage underwriter may require a paper trail of all this, making you to produce canceled checks, deposit slips, and other seemingly inconsequential data, which could get quite tedious. You may become exasperated at your lender, but they're only doing their job correctly. To eliminate potential fraud, it's 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 yeah, and avoid changing banks if possible.

#3. Changing Jobs. Switching jobs can negatively impact your ability to buy a home. This is especially true if a much of your income comes from bonuses, overtime or commissions. The change 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 them. Then they’ll average your bonuses over the last two years in calculating your income.

#4. 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. That's 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.

Jody Zink is a licensed REALTOR in Ohio and Michigan with the Loss Realty Group. Her column appears every other week in the Toledo Free Press. She can be reached at jody@jodyzinkrealtor.com or 419-725-1881.