Buying a house is usually far from easy, even if you’re not a first-time buyer. From house shopping to making an offer to negotiating to close, a host of things can go wrong in the process. And in today’s competitive market, buyers need a plan in order to avoid common mistakes. You certainly need to know what you should do, but often it’s more important to know what you should not do, what to avoid. With that in mind, we offer these 5 things you shouldn’t do before buying a house in Redlands.
1. Quit Your Job or Make a Career Change
When applying for and getting pre-approved for a mortgage, you will have to provide proof of employment and demonstrate consistent employment. So one of the worst things you can do before buying a house is to quit your job or make a career change.
“Job changes can create lending issues, especially if your pay structure changes from salary to commission, as this necessitates a longer track record of earnings – typically two years when it comes to commissions . . . A change from salary to hourly can also create some lending headaches, as hourly earners can have variations in their income simply based on how much they work.”
Financial experts recommend that you “[a]im for consistent employment history of two years or more at the same employer or at least in the same line of work. If you already work in accounting, for example, switching from one accounting firm to another shortly before you buy a home won’t set off any red flags for your lender.”
2. Max Out Credit Card Debt
Another of the top things you shouldn’t do before buying a house in Redlands is to take on a lot of additional credit card debt. “Maxing out a credit card,” experts say, “is one of the worst things you can do before closing on a home loan.”
The problem is that the additional debt and the concomitant payments will impact your debt-to-income ratio and the mortgage financing you can qualify for will be lower. It will also lower your credit score, which is likely to increase the cost of your loan.
According to industry pros, “[f]or the best mortgage rate – and in the interest of keeping debt levels down – try to keep your credit utilization below 30% of your total credit limit. . . . This will improve your credit score, reduce your debts, and help you qualify for the best possible home loan.”
3. Finance a Big Purchase
Similarly, you should also avoid making any big purchase that requires financing before buying a house. So hold off on buying that new car you’ve been eyeballing for months or purchasing those new kitchen appliances your wife’s been wanting.
Such “activities are a big no-no, as a lender will do a final credit inquiry check before closing; if new debts were added, it could jeopardize the loan approval. . . . Taking out a loan on a car or financing a big-ticket item like a boat, wedding, or vacation can increase your debt-to-income ratio (DTI), making you look like a less attractive borrower to a lender.”
4. Shop for a House Before Getting Pre-Approved
Before buying a house – before you even go house hunting – “it’s crucial to get a mortgage pre-approval. Otherwise, you could be setting yourself up for disappointment.”
Here are just a couple of reasons why pre-approval is so important . . .
“If a prospective buyer finds a house they love and afterward tries to get preapproved for a loan, the home may be gone before they finish getting preapproved. In addition, many sellers want to show their home to serious buyers only and will request a preapproval letter from the buyer.”
Getting pre-approved will also let you know how much you can actually borrow and how much home you can afford. “The preapproval process involves applying with a lender who will check your income, credit history, and assets. Only after verifying these documents can a lender approve you for a home loan and tell you your real price range.”
5. Assume You Have to Pay 20% Down
A final thing you shouldn’t do before buying a house in Redlands is assume (and operate on the assumption) that you have put down 20% of the purchase price. Once, that was generally true, but not anymore. So don’t let that assumption hold you back.
Although paying 20% down has certain advantages like allowing a lower monthly mortgage payment, it’s not really a requirement today because buyers, especially first-time buyers, have other options. These include:
- VA Loans – 0% down
- USDA Loans – 0% down
- FHA Loans – 3.5% down
Even with some conventional loans today, you can get by with as little as 3% to 10% down – though you will have to pay for private mortgage insurance.
“Waiting until you have 20 percent down can push your home buying timeline out by years. And the longer you wait to buy, the higher home prices you’ll be chasing – which likely means you’ll need an even bigger down payment.”
What You Should Do Before Buying a House in Redlands
These are the top 5 things (though there are more) you shouldn’t do before buying a house in Redlands. But there is one thing most buyers absolutely should do. And that is to work closely with an experienced Redlands agent. A local agent will have a thorough understanding of the local market and what it takes to help you get the house you want and the deal you need. So when buying a house is in store for you, be sure to contact us today at (951) 232-9704.