21 Things Not to Do When Buying a House

1.) Avoid changing jobs, resigning, or transitioning to self-employment during the loan application process. Mortgage lenders value job stability and consistent income for the long term. Changing jobs or quitting during the home-buying process can raise concerns. Lenders typically require 2 years of tax returns, a requirement that also extends to self-employed individuals. An example is a client who changed jobs shortly before closing; his new overseas employer couldn’t provide timely pay stubs, leading to the client not closing on the home. 

2.) Be honest on your loan application. This is not only incorrect but constitutes loan fraud, and the consequences are severe. Avoid purchasing a car as it can impact three crucial factors that lenders consider when approving a loan: Credit, Assets, and Debt-to-Income Ratio.

3.) Avoid leasing a new car. Banks consider lease payments as regular debts, often requiring a significant upfront payment for car leasing. It’s advisable to keep your money and credit available until after you close on your home. Having an irregular credit score is certainly one of the things not to do when buying a house.

4.) Avoid switching banks. Any information verified at the start of the loan process is also rechecked just before closing. Switching banks during this period only results in additional time and paperwork for both you and your lender.

5.) Avoid overindulging in credit card usage. This aligns with acquiring new credit. Aim to maintain or improve your debt-to-income ratio as you approach closing day. Refrain from adding any extra debt to your credit cards.

6.) Avoid applying for a new credit card. Credit inquiries can be confusing for mortgage lenders, raising significant concerns. Your credit score undergoes another check just before closing to ensure consistency with the initial approval. Since new credit poses a higher risk to lenders, it’s advisable to refrain from establishing it until after closing. Obtaining a new credit card or even just making an inquiry about it affects your credit score negatively, and you may want to remember this as one of the things not to do when buying a house.

7.) Avoid closing current credit accounts. Although it might seem like a sensible choice, closing credit accounts is not advisable when seeking a mortgage as it can potentially lower your credit score. Closing an account reduces your available credit, leading to an increase in the percentage of credit utilization, especially if you have balances on other cards.

8.) Do not overlook lending requirements. When obtaining a home loan, you need to satisfy two individuals: the appraiser and the underwriter. The underwriter overseeing your loan may request various documents to grant a “clear to close.” Make every effort to provide them with the necessary information to ensure your loan closes on time.

9.) Avoid co-signing a loan for anyone. Even if you’re not responsible for the loan payments, co-signing poses financial risks, whether you’re securing a mortgage for yourself or not. Lenders will consider these additional loan payments when assessing your debt-to-income ratio. Co-signing a loan is a red flag for lenders and you have to be cautious, because this is one of the things not to do when buying a house.

10.) Remember to transfer your utilities. While it may seem trivial, amidst inspections, title company dealings, repairs, and meeting lending requirements, utilities can easily slip your mind.

11.) Avoid falling behind on your bills. Maintaining a consistent record of paying bills on time demonstrates responsibility. Skipping a bill or making a late payment can significantly impact your ability to secure a mortgage loan.

12.) Avoid transferring funds to artificially enhance the appearance of your bank account. Lenders prefer to observe the funds allocated for your down payment consistently in your account for at least two months. Therefore, it’s advisable to transfer any saved cash or gift money from family into your account well in advance of applying for a mortgage.

13.) Avoid letting your emotions take control. Purchasing a new home is undoubtedly thrilling, but the process can feel overwhelming, particularly during the initial negotiation of the sales price and when addressing repairs uncovered in the home inspection. While it’s essential not to request repairs for every minor item, you shouldn’t be burdened with fixing significant issues either. Remember, everything is negotiable, and there’s a good chance it will be resolved amicably.

14.) Avoid handing your earnest money deposit directly to the seller. This scenario often arises in FSBO (For Sale By Owner) transactions. The Earnest Money Deposit is a buyer’s good faith deposit, safeguarded in a realtor’s escrow account until closing. However, in transactions without realtors, sellers might mistakenly think they can use the funds at their discretion. This practice is not recommended, as the buyer is entitled to a credit for their earnest money upon loan closure. Handing over earnest money deposit because you want to close the transaction fast is a false hope and is definitely one of things not to do when buying a house.

15.) Avoid using your savings. Your cash will be allocated to various expenses such as the down payment, closing costs, inspections, appraisal, and more. Additionally, lenders may stipulate a certain amount of cash reserves. Unless you have ample funds, be cautious with your savings.

16.) Avoid forming a close friendship with the seller. In my opinion, I believe it’s best for the buyer and the seller to avoid direct communication. Emotions can escalate on both sides, potentially leading to issues that may have adverse effects if a overly friendly relationship develops. It’s crucial to remember that this is a business transaction.

17.) Avoid making significant purchases on credit. With full approval, inspections completed, and just weeks away from closing, it’s tempting to indulge in an 80% off furniture sale nearby. However, resist the urge to splurge! The underwriter will assess your credit just before closing, so wait until after closing to avoid any complications. A few years ago, a client purchased a timeshare two weeks before closing, causing initial concern, but she managed to close successfully.

18.) Avoid using your funds for closing costs. Unless your purchase agreement specifies that the seller covers your closing costs (which varies based on market conditions), you’ll need to pay these costs at closing with a certified check. Consult your lender to determine the amount, and refrain from using that money until the closing.

19.) Stay calm if the appraisal for your new home is lower than expected. Occasionally, we encounter situations where the appraisal falls below the sales price. While this may pose challenges, it’s not a dire situation, and there are potential solutions. As the appraisal is a loan contingency, the seller may need to reduce the home’s price, or you could choose to exit the contract. Alternatively, you might negotiate a compromise by adjusting the home price or finding a middle ground with the seller.

20.) Avoid being by yourself. When collaborating with a Realtor, they can alleviate much of your stress by coordinating inspections, negotiating repairs, and liaising with your lender and the title company. Their role is to lighten your load and ensure a smooth process. That’s what we’re here for.

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