Don't Make Big Purchases | Don’t Move Money Around | Don't Change Jobs

Don't Make Big Purchases 
So you've managed to establish yourself financially, and even put away a chunk of money large enough for a down payment on a home. In fact, you've got more than enough. Why not buy a new car, charge some home and garden accessories on that Visa, and scurry out of town for a last-minute vacation before you start the escrow process?

Bad idea.

If you're serious about buying a home, hefty expenses beforehand can hamper your ability to qualify for the home you want. When qualifying you for a mortgage, the lender will examine your debt-to-income ratio. This is the percentage of your gross monthly income, before taxes, that you must spend on debt-car payments, credit cards, student loans, etc. A healthy debt load for most people is roughly 36 percent. A sizable monthly car payment can push that percentage over what lenders feel is a safe limit, and you may be denied the loan or have to settle for a smaller loan. As a result, you might have less to spend on the home of your dreams. A high debt-to-income ratio compromises your buying power and might put you in a less desirable neighborhood.

Remember that buying a home is a wise investment for your future. Before you run out and buy that sports car on an impulse, think ahead. That car will depreciate as soon as you drive it off the lot, but your home will increase in value over the years.

»Back to top«

Don’t Move Money Around 
If you're planning on buying a home, don't move money between accounts. The lender will be examining the sources of funds for your down payment and closing costs. She will probably require that you supply statements for the last two or three months for all of your accounts-checking, savings, money market funds, stocks, mutual funds and 401K accounts. Any large deposits or withdrawals will be red flags to the lender, and may slow or inhibit the escrow. Changing banks is also unadvisable.

»Back to top«

Don't Change Jobs 
For salaried or hourly employees, changing jobs may not pose a problem before or during escrow. However, if a substantial portion of your income is based on commissions, you should not change jobs before buying a home. Lenders will average your commissions over the last two years to get a sense for your annual income, and if you change jobs, it is difficult to predict future earnings. Same goes for bonuses. Since different employers offer different bonus structures, it would be hard for a lender to predict your annual income based on bonuses you expect.

Part-time employees should also stay put, because the lender will consider your track record of hours worked at your part-time job over the past two years. New employers may not hold to the same schedule, so the lender won't be able to make predictions regarding your income.

Any major career changes, such as corporate employee to self-employed, should also be delayed. Remember, the lender will look two years back and average your income. Anything that will make that process difficult is a bad idea.

»Back to top«