Yay, your offer's been accepted and you're about to become a homeowner! Now you're ready to move onto the next phase in the buying process: Securing a mortgage.
There's a lot to do in between receiving your pre-approval letter and making your first payment and, unfortunately, this is one area where making mistakes really can have unfortunate consequences. Keep these tips in mind to help make the process as smooth as possible.
DO: Provide a Financial Paper Trail
When you first submitted your offer, you probably had to provide a general overview of your income, savings, and debts. Once it's time to get the mortgage process started, it's time to back up those generalizations with a paper trail.
Start gathering your important documents as soon as possible. Put together a folder containing at least two years of W2's (or tax returns, if you're self-employed) the documentation on any existing loans under your name, bank and credit card statements, as well as records for any other assets like IRA's and 401K's. That way, you'll have it all on hand when needed.
DON'T: Make any Big Purchases
We know it can be tempting to run out and start buying furniture for your new place ASAP, but save the experience for after you've been handed the keys. Seriously. Once your loan application starts being reviewed by underwriters, any sizable change in your financial situation — like dropping a few thousand dollars on a living room set and luxe TV — will set off red flags.
Banks monitor your financials right up until the day you go to closing. Large amounts of money leaving your bank account unaccounted for, or worse, a balance on a new line of credit, can throw off the numbers you supplied on your application. If that happens, the bank will have to reassess your loan and, in some cases, it can cause the sale to fall through.
DO: Ask Your Loan Rep For Guidance First
This may sound self-explanatory, but you'd be surprised how many times seemingly-trivial changes can put a loan in jeopardy. Since your bank will be keeping such a close eye on your income and expenses during the application process, the best thing you can do is talk to your loan rep before making any moves.
That's what he or she is there for. Even if you're making a positive financial change, like receiving money as a gift from a family member or paying off a loan to change your debt-to-income ratio, it still needs to be documented correctly. Your loan rep will be able to tell you whether the financial shift is a good idea or not — and walk you through how to do it the right way.
DON'T: Get a New Job
Many first-time homebuyers think that the amount of money they make is the bank's only priority. While it is incredibly important, there's another factor that is equally, if not even more important: your financial stability.
Here's why: The average mortgage lasts for 30 years. Before agreeing to loan you hundreds of thousands of dollars, banks want to make sure that you're just as likely to make your last mortgage payment as your first. Most of that reassurance comes from seeing a history of regular, dependable paychecks.
That's why job changes aren't the best idea when buying a home, even if it comes with a significant pay bump. If an opportunity does come up, do your best to delay it until after closing, so that you can keep your job history looking as stable as possible.