House hunters may not be aware that there are certain actions that will hurt their credit score and therefore affect their mortgage loan application. Here are nine activities that homebuyers should NOT do before purchasing a house because it may jeopardize your chances of getting your mortgage approved.
1. Do Not Change Jobs
Stability is very important to lenders and they like to see at least two years of continuous work history.
2. Do Not Get Behind On Payments
Payment history is the biggest chunk that affects your credit score. Keep paying your bills on time. If you do get behind, call your creditor and work out a payment plan. Also, it's helpful if you don't get behind for more than 30 days because the penalty is higher after that.
3. Do Not Max Out Your Credit
Credit bureaus do not like to see people maxing out on their credit lines because it's a sign of financial trouble and it'll appear risky to loan more money. The sweet spot ratio is to use 20%-30% of your limit.
4. Do Not Close Any Lines Of Credit
The average length of credit history is another factor that makes up your credit score. Closing an unused credit card may lower your credit score so it's best to just let it be until the purchase of your house.
5. Do Take On Any New Debt Or Add New Credit
For mortgage applications, the lower the debt-to-income ratio the better. The ideal ratio is lower than 36%. Taking on new loans or adding more credit cards means more debt and that will affect your debt-to-income ratio. Examples of what not to do are:
Opening Credit Cards;
Opening Store Credit Cards;
Financing A New Car, Motorcycle, Or Boat;
Taking Out Student Loans;
Co-Signing Loans For Others.
7. Do Not Spend Your Savings
You'll want to show your lender that you have ample funds to cover your down payment and still have enough for an emergency savings fund. Buy your furniture and furnishings after you close on the house so your savings amount looks higher for your application.
8. Do Not Make Unusual Deposits Into Your Bank Accounts
Large deposits look suspicious to mortgage auditors. Lenders allow monetary gifts for down payment assistance so let your loan officer know that you'll be receiving a windfall before you make a deposit. That way, he or she can verify the source of your funds to buy a house.
9. Do Not Change Banking Institutions
Changing banks right before buying a house will delay your mortgage approval because loan officers require at least two months of bank statements. If you switch, you'll have to wait until you have two months history and you'll have to resubmit the documents.
After your realtor, your loan officer will be your other new best friend. If you ever have any questions or concerns, just give either one a call and they'll always be more than happy to help because they want to see you achieve your home buying dream.