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What Not to Do Before Buying a House - Don't Do These 18 Things

Updated: Apr 19

Are you wondering what not to do before buying a house?

In this post I’ll be sharing 18 things (yes, this is a full list) of what not to do before you close on your new house.

1. Don’t finance a car or any other big item.

Many loans fall through because the borrower decide right in the middle of the transaction to finance a new vehicle, boat, wedding, furniture, appliances etc.

For instance if your monthly income is $10,000 the bank will analyze your debt to income ratio, which in the front end should not be more than 30%.

What this means is that your house payment along with your taxes and insurance should not be more than 30% of your total income. For the example we are using that will be $3,000.

Your total debt to income ratio, including any other debt like credit cards, vehicles, etc should not be more than 45%.

In this case $4,500 when your monthly income is $10,000.

2. Don’t max out your credit cards.

When you are pre-approved for a home loan the financial institution looks at your entire credit utilization.

If you use your credit cards often, make sure you pay them off every month, so you can keep the same debt to income ratio through-out the loan application process.

3. Not doing your research

Most people assume that their current bank will provide the best terms for their home loan but that is not always the case.

Make sure you shop around to get the best interest rate and also find out your down payment amount and closings costs.

Don’t assume that you need a huge down payment. Sometimes individuals can buy a home with as little as 3% down. Keep in mind that there are some programs that offer down payment assistance, we just need to determine if you are eligible. If you are a veteran you can obtain 100% financing when meeting certain criteria.

4. Don’t change careers or quit your job

Banks like to see a good working history in the same trade or line of business.

Don’t change from salary to hourly pay

Don’t change from salary to commission or self employee.

2 years of work history in the same trade are ideal even if it is not with the same employer.

If you are moving to the Palmetto State, all you need is either transfer docs, or if you already have a job here waiting for you an offer letter that specifies your salary, or hourly pay and a how many hours a week you will be working will suffice.

Or, if you decide to move before buying, you will only need 30 days of work history here, in the same trade or line of business to get approved.

5. Do not close any inactive credit card accounts

By canceling any of your cards you are effectively reducing your debt to income ratio which will make a big difference in your finances and you could potentially no longer qualify for a home loan.

6. Don’t shop for houses without being pre-qualified or pre-approved for a home loan.

In this market it is absolutely critical to include a pre-qualification or pre-approval letter with your house offer.

Seller’s will not take you seriously if you don’t provide this document with your offer.

7. Not hiring a real estate agent

Buying a house is, for most people, the biggest financial decision they make in their life.

Having an expert on your side that can help you go through the entire process is the ideal thing to do.

Keep in mind that in the majority of residential real estate deals the seller is paying for the commission of both, the seller’s agent and the buyer’s agent.

When you hire an agent for the purchase of your home you are avoiding pitfalls from get go.

8. Opening new lines of credit

You are at the store and they are offering you to receive a 20% discount on your purchase if you apply for the store credit card.

DON’T DO IT!!! Pulling your credit during the time of your loan application can reduce your credit score, and, depending on the type of loan your are applying for, you could easy disqualify yourself from obtaining your home loan.

9 Don’t miss loan payments

Make sure you make ALL of your payments on time. That goes for credit cards, vehicles, and anything else you have on credit.

Having a reported late payment will adversely affect your credit score and again, you could no longer qualify for a home loan.

10. Don’t change banks

Keep the same financial institution you have been using, and if for some reason you want to make a change, make sure you do that after you close on your home loan.

11. Don’t make large deposits into your bank account

If you have cash laying around (like under the mattress or in a safe for emergencies) please do not deposit that cash into your bank account. This will immediately raise a red flag and the financial institution will start asking where the money came from and they will also ask for a paper trail if at some point that money was in the bank.

All the money you need for your down-payment and closing costs needs to be in the bank for at least 2 months prior to applying for your loan.

Banks no longer take cash at the closing table. Everything has to be wire transferred or a cashier’s check will be asked for.

12. Don’t provide false information

There is a saying in my country that I like to use to illustrate this point and I’ll try to translate it.

A liar falls easier than a limping man.

If any lending institution catches you providing false information you won’t get approved, is just that simple.

13. Don’t spend the closing costs money

This goes without saying, but is better to say it!!!

If you spend your closing costs money, how can you possibly close on your new home?

Believe me, this have happened…

14. Don’t co-sign anything

Remember that you are financially responsible for any loans your co-sign, which means that this debt, even though is not yours, is still going to affect your debt to income ratio.

15. Skipping the home inspection

In this seller’s market a lot of buyers are skipping the inspection contingency, however, I highly recommend that you do not do this, as the inspection can reveal things that are not readily visible and spare you from big and expensive headaches.

There are other ways to make your offer look attractive.

Some are selling the house AS IS, however, it is best to inspect the home to make sure it needs minimal and not major repairs.

16. Not comparing your loan estimate with your settlement statement

When you start the application process the bank will provide an estimate of all your closing costs, along with interest rate, terms, etc.

Prior to closing the lawyer will provide a copy of the settlement statement, you need to compare everything and make sure that there are no extra fees.

Clerical errors are bound to happen, this is why is good to have your real estate agent helping you every step of the way.

17. Don’t give your earnest money directly to the seller

Your earnest money should be deposited into an escrow or trust account, preferably the bank account of the title company, or lawyer who is going to facilitate closing the deal.

Some brokers have a trust account where they deposit the earnest money until closing day.

In this case the title company will include that money as part of the commission for the real estate transaction.

18. Don’t forget to switch your utilities

If you think this doesn’t happen, think again.

Somebody I know forgot to switch the water into his name, and of course, the utility company disconnected his service and he was without water for 24 hours.

So, don’t let his happen to you!!

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