Beware of These Four Home-Buying Nightmares

Beware of These Four Home-Buying Nightmares

When you are pursuing your dream of getting a mortgage, you will want to avoid potential problems that could turn into nightmares.

Nightmare One: Piling on Debt

Henry was a successful stock trader and anewlywed in his late 20s. He had no problem qualifying for a mortgage loan, as his credit was excellent. But then Henry did a silly thing.

“He went out and bought a very expensive new car and didn’t tell us,” said Judi Wolfson with RE/MAX Associates in Bucks County, PA. “All of a sudden, the day before settlement, the mortgage broker called and said, ‘We can’t do the loan.’ The recheck on the credit report showed a new $700 payment. He had to get his mother to co-sign for him, which was very embarrassing.”

Best advice: Don’t take on new debt during the mortgage-approval process, no matter what.

Nightmare Two: Change Your Job

After being pre-approved for a mortgage, breadwinner Bob decided he could make more money by becoming self-employed. But then the mortgage lender refused to close on Bob’s mortgage because he had made a change in his lifestyle and financial circumstances.

“If it’s a job in the same field, it’s usually not a problem,” Wolfson said. “But if they were employed and think they’ll make more money by being self-employed, it could be a problem because they need a track record.”

Best advice: When you’re buying a house, don’t switch careers or take a drastically different employment path.

Nightmare Three: Packing Up Too Early

Lenders often need financial documentation during the critical time between mortgage pre-approval and the closing or settlement. Unfortunately, that’s the same time when people start packing away files and paperwork.

“If you’re doing a 30- to 45-day settlement, the approvals for your mortgage are going along that whole time, but people pack up and send their belongings on the truck if they’re moving out of state,” Wolfson said. “Then the lender needs copies of bank statements and pay stubs for the last six months, or they want to see proof that a certain loan was paid off.”

Best advice: Keep important paperwork where you can easily access it until the transaction is completed and you’ve moved in to your new place.

Nightmare Four: That’s Not My Debt!

Get a copy of your credit report as soon as possible and check for debts. Many people have blemishes on their report they didn’t even know existed.

Wolfson recalled a couple she worked with for a year to buy a house. They had their own business and inheritances and looked like perfect candidates. But when they went to close on a mortgage they couldn’t get it.

“Their credit was so bad because they had not been paying their bills on time,” Wolfson said. “They thought it was just natural to wait until they had the money to pay them. We did finally get a mortgage that was about 5% higher than the regular rate because of that.”

Best advice: Have your credit checked at the very beginning of the home-buying process, when you first start house hunting, so there won’t be any surprises.

Updated from an earlier version by Ben Johnson.