Buyer or selling your home can be a scary process. If you are using a new real estate agent, it can be even a more stressful and frightening experience. How do you know you can trust them?
Additionally, home sellers and buyers may be told many different things by their family members and friends. How do you know who and what to believe? This is likely one of the most expensive purchases in your lifetime so it pays to choose wisely what is true and what may not be true. Here are a few "lies" that many home buyers and sellers often believe. Remember, things change constantly in the laws and in the market so just because your neighbor sold their home for a lot, does not necessarily mean yours will sell for the same amount. Your neighbor has not be lying (sale prices are public information) but maybe there were additional factors that they are not revealing to you.
Lie #1: Once you have been preapproved by your lender, you can go buy anything you want before closing.
You went to your lender and went through the preapproval process and qualified for a home in a your desired price range! You find that dream home and submit any additionally required documents to the lender. You are approved! No worries now! You can spend the money that you are expecting to get from the sell of your current house. It is now a done deal, right?
Slow down on that spending spree! Even if you are approved for now, it is possible that new car may cause a serious problem right before closing. Want those new clothes to go with that new closet? Why not just open the new store credit card since it will save you 20% on your first purchase?
Most lenders will check your credit again right before closing. Debt-to-credit ratio is one of the ways mortgage amounts are determined. If you increase your debt-to-credit ratio, such as adding a new auto loan, it is possible your may either have a delay in your closing or you may have just imploded the entire deal. Paying for items with cash right before closing is a smart choice to avoid messing up this ratio.
Lie #2: Immediately close down those old credit cards to clean up your credit report and raise your credit score
Most people become "hyper-aware" of their credit score when buying a home. You should know what is on your credit report and should actually check it at least once a year on the three credit card companies to make sure there are no surprises or items that need to be corrected.
When checking credit reports, people often notice "old" gas card or credit cards they may have forgotten they opened in college or years prior. Might as well cancel and clean up your credit, right? Locally, it seems to be the right thing to do.
Slow down on being, what you thought, was responsible! Believe it or not, closing down an unused card may actually lower your credit score. This is because credit scores are partly based on combined credit-to-debt ratios as well. If you close the unused, no-debt card, it will likely increase your percentage of credit-to-debt ratio for all of your other credit cards. The result? A lower credit score. If you want to close down a card or account you discover when checking your credit, do it after closing as to not mess up this aspect of your score.
Lie #3: Of course you should take that new job
"Mom! I got a new job that will pay me almost twice as much! I don't even need to move and can still buy that house!" Sometimes it does seem like life goes that way. You may have struggled for that new job for years and NOW it is offered to you? A week before closing on the new house? Great! Even more money to make the mortgage payments, right?
Slow down with taking that new job right now! Logic seems to say if you are making more money, the lender should feel even MORE confident on closing on your new home next week, right? Well, not always.
When you make major changes, like to your job, it is often seen as a change in the "borrower's circumstances." You are required to tell your lender about changes such as these if you have not yet closed on your new home. Especially if you are changing from a salary job to becoming an entrepreneur between applying and closing, lenders may see this as a red flag. Your closing may not just be delayed but you may now no longer qualify for your new mortgage loan. Lenders are basing your mortgage on, not only your income amount itself, but also on your job and income stability. It would be best to close on the new house before changing jobs.
Speak with your lender before making ANY changes to your lifestyle or credit.