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Tips on Getting Pre-Approval When Buying a New Home
If you are preparing to buy a new home, you have probably been told to get pre-approval for your mortgage. This helps buyers figure out what amount of mortgage they can afford. They will know, when they are looking at homes, if they will be able to successfully pay the mortgage each month.
However, many people assume that if they are pre-approved, they are all set. They do not need to continue to take financial precautions. This is not true. The mortgage process is not guaranteed after pre-approval. You need to take appropriate steps so you don't accidentally jeopardize your pre-approval and make it impossible to obtain the mortgage for the house you select.
Your pre-approval is based on a variety of factors including: credit history, income, assets, and debt-to-income ratio. If you make financial decisions that change any of these factors, your credit profile will change. When it is time to obtain the mortgage, the modified credit profile may change the terms of your mortgage or make you no longer qualify for the mortgage.
Examples of mistakes people make after pre-approval include:
- Buying a new car
- Buying new furniture
- Leaving a job
- Co-signing another loan
If you buy a new car or co-sign another loan, you have added to the monthly debts you are obligated to pay. This will likely change the amount of a mortgage you will qualify for. For example, if you buy a car and now have a $500 per month car payment, your mortgage may need to be $500 per month less which will result in a significant decrease in the overall mortgage pre-approval amount.
If you leave your job, your income will no longer be the same amount. This may mean you can't prove you can afford the monthly mortgage payment.
Charging furniture to your credit card will change your debt-to-income ratio. It may also affect your credit score.
It is best to refrain from making large purchases, changing careers, or obtaining another loan during the home buying process. Large expenditures may have a negative effect on your ability to obtain a mortgage. Save your money until after you have the keys to your new house in your hand!