You've decided to buy a house, and you need financing. Even if you have good credit, you should keep your finances shipshape until closing so that lenders won't think twice.
- Don't change your job before applying for a home loan. Also, now is not the right time to become self-employed or to quit your job. You want to show lenders stability, which means you'll be less likely to default on the loan.
- Don't change banks. As with your employment, you want your banking history to show stability.
- Don't buy a car that you have to finance. Buying a vehicle or any other form of transportation through a loan increases your debt-to-income ratio, and loan officers don't want to see that.
- Don't buy furniture on credit before buying your house. Charging big-ticket items increases your debt-to-income ratio. Save your money for the down payment.
- Don't be late on your credit card payments or charge excessively. You need a track record of responsibility that shows you can manage your money.
- Don't make large deposits into your bank accounts. Lenders like it when the money for your down payment has been sitting in your account for at least two months - what they call "seasoning" - so that the funds don't just appear out of the ether.
- Don't lie on your loan application. Sounds simple, right? But don't leave out any debts or liabilities or fudge your income. It's fraud.
- Don't co-sign a loan for anyone. Even if you're not making the payments on that loan, co-signing increases your debt-to-income ratio.
- Don't apply for new credit cards or prompt any other inquiries into your credit rating. Looking for new credit translates into higher risk for lenders. If your inquiries are related to your mortgage search, that usually doesn't affect your credit score, because lenders assume that you're rate-shopping. But opening credit accounts within a short period of time represents some risk, and your credit could take a hit. Inquiries are probably not a huge factor in calculating your ability to repay a loan, but why take a chance?
- Don't spend money you'll need for closing costs. Part of the price of financing a loan is closing costs, and you'll likely have some responsibility for paying them. Make sure you have enough for your share.
For more information on how to repair bad credit, how to get a mortgage loan when you have bad credit, and how to manage home financing, visit realtor.com.
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