Buying a home, particularly for first time home buyers, can be really stressful. When we bought our first home, I worried about everything from whether we were buying the right home to whether we were spending too much money. I remember our mortgage payment was about $1,200 a month, and I was terrified that we wouldn’t make it.
To keep the stress to a minimum, there are certain things you should avoid doing when buying home. In fact, taking some simple steps in the year leading up to your purchase can save you thousands of dollars in mortgage interest charges. It can also reduce the chance that your mortgage application will be denied. So here are the top 3 things to avoid when buying a home:
1. Ignoring you credit score: If you are planning to buy or even refinance your home, you should know the answer to this question: What is my credit score? If you don’t know what your score is, then you need to get your free credit score and track it.
Your FICO credit score will have a huge impact on what interest rate you can get on your mortgage. For example, at today’s rates, a credit score of 760 or higher can result in an interest rate as much as 4% lower than a credit score of say 500 or less. In addition, even to qualify for certain types of traditional mortgage products you need a credit score typically above about 620. But the key is to realize that your credit score is absolutely critical when you are buying home. A good credit score can easily save tens of thousands of dollars in interest over the life of the loan.
2. Changing Jobs: When it comes to mortgages, there is one critical thing you need to realize–the bank will check your credit report not only when you apply for the loan, but shortly before closing as well. This is a fairly new procedure mandated by Freddie and Fannie. And this means you want to avoid any changes in your financial picture until you’ve closed on the property. And that includes changing jobs.
Now, changing jobs doesn’t necessarily mean your mortgage will be denied. But it does mean the mortgage company will have to reevaluate your mortgage application. They will have to go to your new employer and get the same job and salary verification that they get from your old employer. The point is, at best, it could delay your closing. And that could result in a forfeit of deposits or at least a big headache. So avoid changing jobs if you can until you are in your new home.
3. Applying for new credit: Much for the same reasons you shouldn’t change jobs, you also shouldn’t take on new credit accounts, including credit cards. The credit card application will show an inquiry on your credit report, which can lower your credit score. This can affect the interest rate on your home loan.
Avoiding new credit when buying a home can be difficult. Many people take advantage of 0 balance transfer offers, for example, to make repairs on a house they are selling or the home they intend to buy. And then there is furniture and window treatments for the new home. As exciting as this process can be, you are better off waiting until after closing before taking on new debt.
For more home buying tips, check out this Q&A from HUD.