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 dept of any kind. This includes furniture, appliances, elrctronic equipment, jewelry, vacations, expensive weddings…

…and autombiles, 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.

Debt-to-Income Ratios and Car Payments:

You see, when determining your ability to qualify for a mortgage, a lender looks at what is called your “dept-to-income” ratio. A dept-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and homeowner’s association fees, if any. It will also include your monthly consumer dept, including credit cards, student loans, installment dept, and…

…car payments.

How a New Car Payment Reduces Your Purchase:

For example, suppose you earn $5000 a month and you have a car payment of $400. Using an interest rate of 8.0%, you would qualify for approximately $55,000 less than if you did not have the car payment.

Even if you feel you can afford the car payment, mortgage companies approve your mortgage based on their guidelines, not yours. Do not get discouraged, however. You should still take the time to get pre-qualified by a lender.

However, if you have not already bought a car, remember one thing. Whenever the thought of buying a car enters your mind, think ahead. Think about buying a home first. Buying a home is a much more important purchase when considering your future financial well being.

DO NOT BUY THE CAR. BUY THE HOUSE FIRST!