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Things Not
to Do Before Purchasing a Home
No
Major Purchase of Any Kind
Review the article
titled, "Don’t Buy a Car, Also 2nd article
" 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.
Why
You Should Not Buy a Car
When you get a raise or
accumulate some savings, you may find yourself confronted by an innate
instinct of modern civilized men and women. The desire to spend
money.
It begins simply, by going
out to restaurants, then accelerates to purchasing clothing, electronic
gadgets, and since North Americans have a special fondness for the
automobile, you may even buy a "brand new car."
If you're married or
ambitious, a few months later your thoughts eventually turn toward buying
your own home. Or a move-up home, if you are already a
homeowner.
Next, you contact a loan
officer to get prequalified for a mortgage loan. You state your
desired price and how much you can put down. You provide your income
and may even supply pay stubs and W2 forms. The loan officer
methodically crunches the numbers (by telephone, in person, or even over
the internet).
"If only you didn't
have this car payment..."
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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.
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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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