Preventable Common Buyer Mistakes

You have decided to buy, and now you are saving your pennies. My parents always preached “save your pennies and the dollars will take care of themselves.” However, despite your efforts to put aside money for a down payment and to keep your credit history in good standing, you keep hearing from a friend of a friend about the pitfalls others have encountered during the home buying process. To help ensure you’re really prepared, here’s a list of 10 things future home buyers should NOT do. While some of these are time specific, many of these suggestions apply whether you’re just starting to think about buying or are about to close on your dream home.

Do not quit or change your job

This seems like a no-brainer, but I recently met a man who worked for a professional sports team. Naturally, when he moved to a new city, he obtained employment with a new team. Because the two teams had very different markets (even in the same state), lenders were unable to use his employment history to qualify him for a loan.

Don’t make David Copperfield deposits (basically, don’t deposit cash)

This one is meant to make you laugh a little, but it is a serious problem. I worked with a gentleman a few years back that owned rental property in his home town. He was a very nice guy and easy to work with landlord – so easy, in fact, he didn’t require that his tenants sign a lease and he let them pay rent in cash! When he was ready to buy, he had to provide letters of explanation for each and every cash deposit over the period of years.

Don’t buy any large ticket items

This can be anything from a couch to a vehicle. I have had clients moving from out of state with absolutely nothing, and all they want is a couch to sleep on the first night. Trust, me the floor or an air mattress is better considering the alternative is explaining to an underwriter why you spent $1000 right before closing. I have other clients sucking the last bit of life out of their old jalopies because financing a car would hit their credit score and adversely affect their buying power.

Not getting a gift letter and a bank statement for funds

You may not be aware of this if you are in the beginning stages of buying. Maybe you’re just browsing the web to get an idea of neighborhoods and cost at this point. Guess what?! Family and friends can help you buy a house by giving you a limited amount of cash to go towards your closing costs. However, there are a few guidelines and if you fail to follow the rules, this is a guaranteed way to ensure that your lender calls you repeatedly. Fannie Mae and Freddie Mac are pretty serious about knowing where that gift came from and if they really have the money to give you. If they can’t verify the gift, you can’t use it to buy your home.

Not telling the person who is giving you the gift that you will definitely need a gift letter and some proof (usually a bank statement) that they had the money to give

It’s nice to have friends and family that want and are able to help you buy your home. What’s not so great is that they don’t feel like it’s anyone’s business how much money they have. They’re right! It really isn’t. However, lenders don’t want to find out your friend is “loaning” you money and in 6 months when you pay that sum back, you can’t handle your mortgage. It has to be a gift, and if they’re going to help out, they have to prove they can afford to gift you money. That’s all there is to it. No ifs, ands or buts about it.

Do NOT co-sign

This one seems logical, but everyone in your life that needs help qualifying for a car, an apartment or cell phone can wait until after you close on your home.

Don’t schedule a vacation before we close (especially a prepaid, nonrefundable cruise or vacation)

Closing doesn’t always happen on the date in the contract. Often times, there are delays with the lender, the sellers, or even you, the buyer. When closing is pushed back, it would be a bummer to discover that vacation isn’t going to happen after all.

Don’t order Direct TV, cable, telephone, internet, or any utility that will pull a credit report, unless you want to write a letter of explanation about the inquiry on your credit report to your mortgage company

Even soft inquiries can affect your score or are a flag to the underwriter. When a lender requests a letter of explanation at 2:00 PM on the Tuesday before your Friday close, you have to stop everything to write and submit the letter. If you’re busy with work meetings and are unable to respond quickly, they could move onto the next file on their desk. This results in your closing being pushed back! I know you want cable service to go with that couch you’re planning to lay on the first night in your new home, but it can wait until the day after you close. Just play it safe.

Don’t change your name during the mortgage process

Often times, home buying and marriage happen at the same time. You have time to change your name; so, hold off until after closing.

Contact me to learn about things to avoid doing, ways to prepare, and the process to buying a home!