Things Not to Do Before Purchasing a Home
No Major Purchase of Any Kind
Review the article titled, "Don’t Buy a Car,"
and apply it to any major purchase that would create debt
of any kind. This includes furniture, appliances, electronic
equipment, jewelry, vacations, expensive weddings…
…and automobiles, of course.
Don’t Move Money Around
When a lender reviews your loan package for approval, one
of the things they are concerned about is the source of
funds for your down payment and closing costs. Most likely,
you will be asked to provide statements for the last two
or three months on any of your liquid assets. This includes
checking accounts, savings accounts, money market funds,
certificates of deposit, stock statements, mutual funds,
and even your company 401K and retirement accounts.
If you have been moving money between accounts during that
time, there may be large deposits and withdrawals in some
of them.
The mortgage underwriter (the person who actually approves
your loan) will probably require a complete paper trail
of all the withdrawals and deposits. You may be required
to produce cancelled checks, deposit receipts, and other
seemingly inconsequential data, which could get quite tedious.
Perhaps you become exasperated at your lender, but they
are only doing their job correctly. To ensure quality control
and eliminate potential fraud, it is a requirement on most
loans to completely document the source of all funds. Moving
your money around, even if you are consolidating your funds
to make it "easier," could make it more difficult
for the lender to properly document.
So leave your money where it is until you talk to a loan
officer.
Oh…don’t change banks, either.
Should You Change Jobs?
For most people, changing employers will not really affect
your ability to qualify for a mortgage loan, especially
if you are going to be earning more money. For some homebuyers,
however, the effects of changing jobs can be disastrous
to your loan application.
How Changing Jobs Affects Buying a Home
For most people, changing employers will not really affect
your ability to qualify for a mortgage loan. For some homebuyers,
however, the effects of changing jobs can be disastrous
to your loan application.
Salaried Employees
If you are a salaried employee who does not earn additional
income from commissions, bonuses, or over-time, switching
employers should not create a problem. Just make sure to
remain in the same line of work. Hopefully, you will be
earning a higher salary, which will help you better qualify
for a mortgage.
Hourly Employees
If your income is based on hourly wages and you work a
straight forty hours a week without over-time, changing
jobs should not create any problems.
Commissioned Employees
If a substantial portion of your income is derived from
commissions, you should not change jobs before buying a
home. This has to do with how mortgage lenders calculate
your income. They average your commissions over the last
two years.
Changing employers creates an uncertainty about your future
earnings from commissions. There is no track record from
which to produce an average. Even if you are selling the
same type of product with essentially the same commission
structure, the underwriter cannot be certain that past earnings
will accurately reflect future earnings.
Changing jobs would negatively impact your ability to buy
a home.
Bonuses
If a substantial portion of your income on the new job
will come from bonuses, you may want to consider delaying
an employment change. Mortgage lenders will rarely consider
future bonuses as income unless you have been on the same
job for two years and have a track record of receiving those
bonuses. Then they will average your bonuses over the last
two years in calculating your income.
Changing employers means that you do not have the two-year
track record necessary to count bonuses as income.
Part-Time Employees
If you earn an hourly income but rarely work forty hours
a week, you should not change jobs. There would be no way
to tell how many hours you will work each week on the new
job, so no way to accurately calculate your income. If you
remain on the old job, the lender can just average your
earnings.
Over-Time
Since all employers award overtime hours differently, your
overtime income cannot be determined if you change jobs.
If you stay on your present job, your lender will give you
credit for overtime income. They will determine your overtime
earnings over the last two years, then calculate a monthly
average.
Self-Employment
If you are considering a change to self-employment before
buying a new home, don’t do it. Buy the home first.
Lenders like to see a two-year track record of self-employment
income when approving a loan. Plus, self-employed individuals
tend to include a lot of expenses on the Schedule C of their
tax returns, especially in the early years of self-employment.
While this minimizes your tax obligation to the IRS, it
also minimizes your income to qualify for a home loan.
If you are considering changing your business from a sole
proprietorship to a partnership or corporation, you should
also delay that until you purchase your new home.
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