After shopping around for months, you just put an offer in on a home and are excited to become a homeowner finally. You’re ready to move into the new place, but you just have to wait to complete the paperwork before getting the keys.
If you’re at this stage, there are many financial moves that you need to avoid before you finalize your mortgage. We spoke with two real estate agents who shared the biggest mistakes potential new homeowners make before closing on a mortgage.
Mistake 1: Opening Up New Credit
“While waiting for your clear-to-close, avoid making any moves that could impact your credit, including opening up new credit cards or financing a large purchase,” said Aja McClanahan, a financial writer and real estate agent from Space Coast Move HQ. “Depending on the loan type, you may even have to avoid making large deposits or withdrawals to your bank accounts, as your lender may ask you to verify the source of these transactions.”
As you’re shopping for new items for your home, you likely will be offered the opportunity to open up a new credit card at some point since most retailers offer store-brand cards. You also might be thinking about applying for a loan or some form of credit to purchase typical home staples such as a living room set or a lawnmower.
However, you want to avoid opening up any new credit because this could be used against you and you could have issues with closing on your mortgage. You don’t want that home closing to fall through because you financed a new couch you couldn’t afford.
Mistake 2: Making Another Big Purchase
“Don’t make any big purchases while closing,” said Chris Craddock, an experienced real estate agent. “After the seller accepts your offer and you have the bank all set up and approved with your mortgage commitment, it is important not to make big purchases like cars or even costly appliances.”
To add to the first financial move, you don’t want to overextend yourself financially before you get the keys to your new place.
“If the bank sees this and no longer feels you can afford your monthly fees, they may and can pull your mortgage offer,” Craddock said. “Always check with your lender first, or wait ’til after closing to start making those high-ticket purchases.”
It’s vital that you close your mortgage before you start spending money on expensive purchases.
Mistake 2.5: Trying To Furnish Every Room in Your New Place
As you anticipate getting the keys to your brand-new home, you likely will get excited about the potential of sprucing everything up. It will be tempting to try to furnish every living space in your home, but this is one of the biggest mistakes new homeowners make. Even though you’re going to want to furnish every room, it’s urgent that you wait until you get the keys to start shopping around for new furniture.
Mistake 3: Changing Your Employment Status
“You should avoid changes in employment, including reducing hours or changing employers altogether,” McClanahan said when sharing insights on those trying to switch careers during a home purchase. “Most loan processors will verify your employment right before closing, and changes could delay or prevent your closing.”
You don’t want to make any drastic changes to your work or hours that could hurt your mortgage closing.
It’s essential that you don’t switch jobs or make a career decision during the mortgage closing process. You were approved for your loan, likely due to your employment history, your income or a combination of both. You don’t want your lender to pull the offer because you changed roles or made a move that would impact your ability to make your mortgage payments.
Mistake 4: Accepting the First Loan Terms
You don’t have to accept the first set of loan terms you receive. You’re able to negotiate and shop around for better mortgage rates. This is why it’s vital that you improve your credit score by paying down debt and work toward building up a larger down payment.
While you may be excited at the thought of becoming a homeowner, you want to ensure that your lawyer reviews the mortgage terms so everything’s in order.
Mistake 5: Not Saving Enough for Closing Costs
The expenses pile up quickly when you close on a property. Even though you’ve already allocated a significant portion of your capital toward the down payment, you’ll still be hit with additional bills when it comes to closing on your mortgage. Here are some of the expenses you should prepare for:
- Property taxes
- Legal fees
- Application fees
The reality is that the fees start to add up when closing on a mortgage. Many experts have stated that you can spend anywhere from 3% to 6% of the purchase price on closing expenses. This doesn’t even include the money you’ll have to spend on moving costs and everything related to your new home.
It’s critical that you prepare financially for this colossal investment so you don’t find yourself stressed out and unable to enjoy your new place.
“If you’re financing a home, your lender should give you a list of dos and don’ts while you’re under contract and headed to the closing table. Some lenders may even ask you to sign a document agreeing to the conditions,” McClanahan said, summarizing the importance of working with the right real estate professionals when closing your mortgage.
You’re going to want to do everything possible to avoid these five mistakes.
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