Buying a Home Soon? Don’t Buy a Car!
19 May2010
By Molly Eynon, Buyer Specialist
Things Not to Do if you are Thinking about Buying a House
When you get a raise or accumulate some savings, you may find yourself confronted by the very human desire to spend that money.
It can start by going out to restaurants, then accelerates to purchasing clothing, electronic gadgets. It can then lead to the very American desire to buy a brand new car.
Whether you have a family or are looking to add to your assets, a few months later your thoughts eventually turn toward buying your own home or upgrading to a new one.
Next, you contact Sharon Natarus at Wells Fargo or another loan officer to get pre-qualified 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). But if you have a new, large car payment, this can greatly affect the terms of your loan — or your ability to get a loan at all. So now you’re wishing you didn’t have that car payment.
Don’t Make Major Purchases
This scenario doesn’t just apply to new cars, but it can for any major purchase: expensive vacations, big weddings, major electronics, furniture, etc. Don’t succumb to making major purchases in advance of preparing to buy a new home.
Don’t Move Money Around
When a lender reviews your loan package for approval, he or she is going to be looking for the source of the funds you will use for your downpayment and fees. You’ll be asked to provide information about your assets, including 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.
You’re going to need to be able to provide a complete paper trail of where your money has been and where its going. You may be required to produce canceled checks, deposit receipts, and other information that might not seem like a big deal — but it is!
Don’t get frustrated with your lender and all the tedious details. Especially in this lending climate, your lender has to review your finances carefully to ensure quality and eliminate any problems before they happen. Lenders have strict rules to follow to avoid fraud, which includes tracking money movement and documenting the source of all funds. Moving your money around could make it more difficult for the lender to properly document your funds, even though you may be trying to make it “easier.”
Think Before you Spend
In short, think before you spend or move money around. Know that, especially in this tough market for home loans, your finances are going to be analyzed very carefully. You want to present a stable and solid financial situation to your mortgage company when applying for a home loan. So don’t spend all the money you get, don’t go into needless debt, and don’t do anything with your funds that might raise a red flag at the bank.
Learn More:
AmyBSells.com: Tracking Monetary Gifts
RealEstateabc.com: Debt to Income Ratio and Car Payments
About.com: A Car Payment May Prevent You From Qualifying for a Loan
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