Before you start your home search, it is beneficial to talk with a mortgage broker to learn about what kind of mortgage you would be approved for. They will look at your income, credit score, and outstanding debts (including any loans and credit cards) among other factors to determine how much you can comfortably spend on a mortgage and what price range you should be searching in.
When applying for a mortgage, consistency is the name of the game. There are a few things that you should keep in mind to make sure you don't derail your home buying process along the way.
- Don't apply for new credit cards or loans. Each time you apply for new credit, you are seen as a greater credit risk, at least temporarily. Applying for new credit cards and loans can ding your credit score enough to hurt your eligibility for a mortgage or bump up your interest rates. This also includes co-signing for a loan with someone else.
- Don't close any credit cards. Credit utilization is an important aspect of your credit score and looks at how close to your credit limit you are on all lines of credit.
For example, if you have credit card A with a $10,000 limit and a $5,000 balance and credit card B with a $10,000 limit and $0 balance, your credit utilization is 25%. If you close credit card B, your credit utilization becomes 50%. This could significantly impact your mortgage rates.
- Don't deposit large amounts of cash into your bank accounts before speaking with your lender. Banks and lenders want to see that you have the money to pay your mortgage each month and where that money is coming from. Adding in a large transfer of cash from an unknown source will make the underwriters question your finances and could delay or derail your purchase.
- Don't make any large purchases. While it may be tempting to buy new furniture or appliances before closing so you can have them delivered to your new home right when you move in, this could negatively impact your ability to close on time. Large purchases could impact your credit utilization and opening a new credit card to receive special financing offers, could ding your credit score. It's better to save your major purchases until the sale is officially closed.
- Only change jobs strategically. Mortgage lenders will look at your employment history to see what kind of income you bring in monthly to make sure you can afford your mortgage. If you're applying for a new job in the same field or already have a job offer in hand, they may consider the move less risky. But waiting to change jobs until after your mortgage is closed may be the better option.
The most important thing to remember when applying for your mortgage is to keep in regular communication with your lender and ask them before making any decisions that may impact your credit. Their goal is to help you make it to closing with a mortgage that you can afford.
If you're ready to start your home search, our team would be glad to help. We can recommend local lenders to work with based on your needs and help you start your search when you are ready. Call us at (434) 214-6121 to talk with Kelly, John, or Rives about your home ownership goals.
