Remember the excitement of buying your first home? Or as a prospective homeowner, you might be right in the middle of the excitement!
It’s common for homebuyers to want to do as much as they can before the big move to ensure a smooth process. But it’s important to know - making major financial decisions or changes can complicate your home buying experience.
Here are some major things to avoid to help minimize any additional speed bumps you might run into.
Closing Out Credit Cards
Closing a credit card can shorten your overall credit history, which can then majorly affect your credit score. That means, the history you worked so hard to build is no longer factored into your credit scores. As a lender, the more years of responsible credit you showcase, the more trustworthy and dependable you appear when it comes to repaying borrowed money.
Opening New Credit Cards or Accounts
Similar to our previous point, you should wait until after your home buying process is over before opening a new credit card or account.
It only makes sense that once you pick a house, you need to start stocking up on furniture and other necessities. But before you go out and open new credit cards at all the best department stores, it’s important to note that any new accounts could significantly drop your scores.
Paying Off Debt
If you have collections or charge-offs, it can be tempting to want to clear the slate and pay them off before securing a new mortgage loan. Before you do, I encourage you to speak with me or another expert! However ironic it might be, paying off these debts could negatively impact your credit scores.
Increasing your Credit Card Balances
During pre-approval, your lender will need to pull your credit one last time before closing. This is to verify nothing has changed in your financial profile, including your credit score.
At this time, you will want your scores to be as high as possible in order to score the lowest interest rates, which can lead to lower monthly payments and overall interest costs. To ensure a high credit score, you will want your credit card balances to be as low as possible.
Buying A New Car
Buying a new vehicle and a new house back-to-back is never a good idea. In fact, adding any new line of credit or loan to your credit report is a bad idea during the home buying process.
This additional big purchase can negatively affect how lenders view your financial stability. By adding to your debt load, you might appear to be a riskier borrower, which means you might be less likely to get approved for a mortgage loan.
Plus, if you take on a large debt such as a car loan, you might be less able to afford the payment on the home you really want.
If you have any questions about common mistakes to avoid during the home buying process, don't hesitate to reach out!
