Buying a new home is not necessarily an easy process. Persons who have bought and sold previous homes can likely attest to the long process and endless pile of requested documentations. Qualifying for a new home involves more than being able to afford the monthly mortgage payment. Before a loan application is approved, the mortgage lender will closely evaluate every aspect of your finances: gross salary, savings account, debt expenses, etc.
Because some mortgage lenders adhere to specific housing and debt ratios, some factors can result in a mortgage loan denial. According to most lenders, an applicant’s monthly debt payments cannot exceed 36% of their gross income. For example, persons with a gross income of $2,000 cannot have debts that exceed $720. This includes credit card payments, car payments, student loans, and so forth.
Even though it is possible to get approved with a high debt to income ratio, the loan terms are less favorable. Prior to purchasing or financing a new home, buyers should be aware of things which could result in a higher interest rate, or a loan denial. Consider the following don’ts when applying for a home loan.
3 Things to Avoid when Buying a Home
Don’t Buy a New Car
Regrettably, soon after getting pre-approved for a home mortgage loan, some homebuyers choose to finance a new vehicle. This is a huge mistake. The pre-approval consist of an affordable mortgage amount based on the borrower’s debt load at the time of applying. If the borrower incurs new debts, the pre-approval amount is no longer valid. In this case, the borrower would have to apply for a new pre-approval. Because of the new monthly debt, the loan amount the borrower is able to afford may decrease. Whenever possible, hold off on financing vehicles or furniture until the loan is finalized.
Don’t Switch Jobs
If you hate your current job and thinking about choosing a new career, wait until the home loan is finalized. Furthermore, if contemplating switching to self-employment or a commission-based job, never do so right before buying a new home. Mortgage lenders favor stable loan applicants. If a new job is inescapable, attempt to remain within the same field.
Don’t Skip on the Home Inspection
Due to high competition is some housing markets, some buyers are willing to skip a home inspection to win a bidding war. While most homes will not have extensive damages, there is always a small chance of the home having plumbing, electrical, or pest problems, which could costs thousands. Regardless of how bad you want a particular home, never purchase without an inspection.
