When searching for your first or next house, it is vital to ensure you’re putting your best foot forward so you can land your dream home.
Here are some key dos and don’ts for the mortgage process and purchasing a home.
Do: Build Your Homebuying Team and Maintain Consistent Communication
One of the first steps you should take in your homebuying process is building the right team for you. Start by identifying the lender you want to work with for financing your home. Look for a lender with local knowledge and decision-making capabilities that also offers the right mortgage options for your situation, such as first-time homebuyer programs.
It is also important to identify the right real estate agent to meet your needs, one who has the right relationships and knows the area where you’re house hunting.
Don’t: Liquidate Your Savings
Purchasing a home is one of the largest purchases many consumers will make in their lives. Outside of obtaining a mortgage, you will also need to ensure you have enough saved to cover your downpayment, closing costs, fees as well as potential reserve funds, all of which are required to be verified in advance of closing.
Making major purchases like buying a car can reduce your available funds for closing. It is also important you don’t move large sums of money without documentation, as lenders will review your financial statements to ensure you can afford the payments, and deposits and transfers may be questioned as part of the process.
Ensure your savings are in order and you have a paper trail for assets that will be requested by your lender. If the funds for closing are coming from a non-liquid source, such as gifts, home equity lines of credit (HELOCs), or investment funds, the money must be moved in advance (typically a week) of closing.
Do: Watch Your Credit Usage
Even after you’ve received pre-approval for your mortgage, it is important to monitor your credit and spending carefully. Avoid taking out new loans or opening credit cards before and during the mortgage process, as these additional liabilities may have a negative impact on your qualifying debt-to-income ratios.
For your existing credit lines, pay off your balances in full each month whenever possible and don’t close lines of credit as this can impact your credit score.
And while it may be tempting to buy new furniture or appliances for your dream home while you wait to close, it is important to hold off on these purchases until after closing to avoid potential negative impacts on your mortgage process.
Do: Research Available Homebuying Programs
There are a variety of programs out there to help achieve the dream of homeownership.
Some lenders offer first-time homebuyer programs as well as affordable mortgage programs designed to assist with upfront costs, help individuals and families of varying income levels find an affordable home through down payment and closing cost assistance, and more. Work closely with your lender to see what programs they have available to meet your needs as well as what state, local, and federal programs there may be that can help you.
Do: Limit Employment and/or Income Changes
As part of your mortgage process, your employment and income will be reviewed. During this time, it is important to avoid changing jobs or retiring, when possible, as any changes or removal of income may have a negative impact on your qualifying debt-to-income ratios.
Do: Keep Good Records and Have Your Documentation Ready
The mortgage approval process requires your lender to verify documentation related to income, employment, debt and other obligations. As documents are provided to the loan team, additional supporting information may be requested, which is why it is important to keep good records and have your documentation ready to avoid delays in your formal loan approval, and subsequent settlement date.
Do: Ask Questions
Your lending team is here to support you throughout the loan process and answer any questions you may have. Don’t be afraid to ask plenty of questions along the way to help you work together to secure your dream home.
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