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Author: Corey Senn Article source: http://californiahomemortgageloans.blogspot.com/. Used with author's permission.
Buying a home is a big step and there are some definite no-nos to avoid so that your home buying experience isn't something that makes you want to jump off the nearest bridge. While many people assume we are talking about the 'shopping around and making an offer' period no-nos, we are actually referring to several months prior to your home buying experience.
1) First Off: Don't Blow Your Credit with Additional Debt
One of the integral decisions for any lending institution is a borrower's interest rate. This rate is decided upon based on your credit score, assets and financials, amount of down payment, as well as numerous other potential factors. Any major purchase that you make or expense that you incur (car, boat, wedding, electronic equipment, vacations, etc.) can affect the amount of debt that you are carrying and can adversely affect your loan rate. (Since your loan rate can be with you for many years, it makes sense to really focus in on how to keep this as low as possible.)
A Note on Credit Card Debt: If you don't own a home, most of your debt will be from credit cards. The way a bank looks at credit card debt is as follows: they take your total credit limit on each card and assesss how much debt you are carrying. As long as the debt on each card is less than 50% of the credit limit, a bank does not look unkindly upon it. However, once your debt exceeds 50% of your credit limit on each card, your credit is adversely affected.
2) Keep Your Cash and Assets Where They Are
Before approving your loan, the lending institution will review your financials (bank statements -- both checking and savings, 401Ks, retirement accounts, Stocks, Bonds, Mutual Funds, certificates of deposit, etc.) to determine how a borrower is going to come up with their down payment and/or closing costs. Most lending institutions require 2 to 3 months of statements for any liquid assets that a borrower holds. This gives the lender a better idea of how much money the borrower has and insures that they have a good, stable history on these accounts.
One of the red flags that a lending institution looks for is an unusual amount of shuffling of funds between accounts in the months prior to a home purchase. The reason is that a borrower may want to create the allusion that they have more assets than they really do by shuffling funds to generate strong financial statements for each of their accounts. Over a three month period, however, it is very difficult to maintain the level of funds for all accounts by shuffling between accounts.
Many borrowers may be shuffling funds for completely innocuous reasons (a money manager left a fund, an account is closed, etc.). In this case, most banks ask the borrower to show the lending institution the paper trail or deposits and withdrawals between the accounts to alleviate any concerns that they may have. This can be a frustrating experience -- cancelled checks, deposit receipts, and other seemingly inconsequential data tracking can get rather tedious.
It is a good idea to try and keep any shuffling of funds between accounts to a minimum as it increases the chance for mistakes to be made or may look like you are trying to run from a difficult situation.
3) Switching Employment
In most cases, changing jobs will not adversely affect how a lending institution views your level of risk for a home loan. This is not the case if, for instance, you become self employed and cannot show a bank that you have a steady level of income. As long as your new job commands the same level of income that your previous one did, most lenders will see this as a wash -- if not an improvement.
The point to all of these recommendations is stability. Change opens borrowers up to silly mistakes among your accounts, the allusion of trying to hide certain financials, etc. This is the last thing that a lending institution wants to see when they are trying to decide whether to loan money to a borrower. So, relax, don't do anything drastic or out of the ordinary in the months preceding your home loan. Good luck and happy house hunting! Corey Senn is a Senior Partner with A Bad Credit Lender, a California based mortgage lender that specializes in hard money and bad credit loans. Located in La Jolla, California, A Bad Credit Lender provides competitive private hard money loans, California bad credit loans, and bridge loans. In addition, Corey is one of the main contributors to the California Home Mortgage Loan web blog.
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