James “Jim” Cicchese serves as a Realtor with the Los Angeles, California-based real estate firm Compass, where he draws on over three decades of industry experience. With a commitment to personalized guidance, Jim Cicchese works closely with buyers to identify properties that fulfill their needs and meet their lifestyle requirements. If you are preparing to purchase a home, consider the following guidelines on what to avoid doing beforehand:
1. Debt-Incurring Purchases
When determine your mortgage qualifications, lenders examine your debt-to-income ratio. This figure represents the pre-tax percentage of gross monthly income spent on principal and interest for your debts, including student loans, car payments, and credit card balances. A high debt-to-income ratio could compromise your chances for a mortgage approval or reduce the amount for which you qualify. Hold off on buying a car or high-end appliances, taking pricey vacations, and making other purchases that will increase your debt.
2. Changing Jobs if Not a Full-Time or Salaried Employee
While salaried and full-time employees can usually change jobs before buying a home without issue, other types of employment can create uncertainties regarding your future income. For example, mortgage lenders calculate commissioned workers’ income using their average commissions across the previous two years. A new job means you have no track record for lenders to draw from. It is also not advisable to switch jobs if you receive hourly pay, but seldom work a 40-hour week.
3. Actions That Could Lower Your Credit Score
Your mortgage loan’s interest rate and terms will largely depend on your credit score. Insurance companies also use it to determine your premiums for homeowners’ insurance, which nearly all lenders require buyers to purchase. Avoid actions that can potentially lower your credit score, such as maxing out credit cards, missing due dates for debt or bill payments, and closing a credit line or opening a new one.
4. Transferring Money between Accounts
Many mortgage underwriters will want a complete paper trail of withdrawals and deposits for all of your financial accounts, as well as recent statements for stocks, retirement savings, and other liquid assets. Transferring money between or consolidating accounts during this time can make it difficult for underwriters to fully document all of your fund sources.