4 Credit DON’Ts When Buying a Home

Buying a home can be very stressful, whether it’s the first time or the tenth time. One of the most confusing parts of purchasing a home deals with funding the purchase. Assuming you are not buying a house outright (because very few people do that), you are likely going to have to get funding to buy the house. Most people will work with a lender, such as a bank or credit union. To get a loan, you have to meet all kinds of requirements, fill out paperwork, and do a lot of waiting.

That waiting period is often the most critical time for your credit. You must keep everything in the “status quo” during that time. Making significant changes can affect your ability to get a loan, even if you have already been approved on a preliminary basis. Below is a list of things you absolutely should not do during this waiting process.

1. Miss a payment

It’s crucial that you keep up with all of your payments during this waiting period. A lot is going on in your life right now, so it’s easy to miss mail or an email notice that a bill is due. Make an extra effort to pay everything on time or early.

One horror story that I have heard was that one family was buying a home at the same time they were selling theirs. Their house sold, but they missed the last mortgage payment while they were worried about moving and switching jobs. That one payment was flagged on their credit report, and they were unable to close on their new home. Don’t let this happen to you!

2. Change jobs

Sometimes you can’t help changing jobs, and that may even be the reason for your move. But, your lender is going to want to verify your employment, and having a steady stream of income looks great to a lender. If you have a break between jobs or your income seems unstable, that can look bad. Stability is critical to a lender.

3. Buy furniture or other household items on credit

The prospect of buying a new home is exciting. Perhaps you are thrilled to be able to get the large sectional you have been wanting for years, or you are ready to get a new set of dishes before the move. Although it’s hard, hold off on making these purchases if you plan to do it on credit.

Taking on new debt while your loan is pending can hurt your credit score. The new lender will do a hard inquiry to get you the credit, and that dings your score a few points. Then, the new credit limit will affect your credit utilization rate, which can also disturb your credit score. It’s better just to hold off, so your credit doesn’t drop, and the lender doesn’t flag your application.

4. Make large depositions or large purchases

Your lender is likely going to ask for your bank records for the past several months as part of the loan application process. They carefully review these records, and they will ask you about where large deposits came from or where large chunks of money are going. They would rather see deposits go to the down payment, and they may get concerned about your stability if large amounts of money are leaving your account.

Buying a home is exciting, but it’s important to keep your credit score up while you wait. Don’t risk something that you have worked so hard to achieve!

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