The 10 Commandments of Buying a Home

The 10 Commandments of Buying a Home need little introduction. Once you (and possibly your co-borrower) have located your dream house, you don’t want any snags on your mortgage application. These are the 10 Commandment of Buying a Home:

Number 10) Thou shalt not (under any circumstance) cosign a loan for another person.

Originating new debt is almost a surefire way to get your mortgage declined. Why? Because the additional loan’s payments are now added to your Debt to Income Ratio calculation.

Related: How to Calculate Your Debt-to-Income Ratio

Why does that matter? Many people originate mortgage loans with debt to income ratios that won’t allow them to obtain a mortgage with the additional payment. Some Mortgage Lenders will say, “Their ratios are tight”. This means the applicant is close to (and hopefully not over) the limit for approval.

Number 9) Thou shalt not change bank accounts. Changing bank accounts creates a nightmare of a paperwork problem for you, your Great Mortgage Professional, and the underwriter. If you have to change bank accounts during your mortgage approval process, consult your Great Mortgage Professional first.

Related: What Lenders are REALLY Looking for in Your Bank Statements

The nightmare comes when the underwriter will undoubtedly ask you to verify all deposits going into the new bank account. Now, not all nightmares end up in a denied mortgage application. But, if you can avoid creating headaches and problems, then do that! Try to wait until after your mortgage is approved and closed before changing your bank account.

Number 8) Thou shalt not make large deposits (especially cash) without providing proper documentation. Large deposits (outside of regular payroll deposits) without proper documentation are a major no-no for applying for a mortgage.

The reason this is a 10 commandment of buying a home is because large, unsubstantiated deposits are counted against your assets for underwriting purposes. Cash deposits are even more challenging for an underwriter. It’s really hard to prove where the cash came from. “It was under my mattress” is not going to cut it. If you get a cash bonus at work, and deposit it into your bank account, you can bet your Great Mortgage Professional will ask for verification of the bonus.

Number 7) Thou shalt not originate any kinds of inquiries into thou’s credit. Credit inquires create more headaches for you and your underwriter. I bet you knew your credit is pulled when you start your application. But, did you know it’s pulled again just a few days before you close to make sure nothing dramatically changed?

Having “surprise credit inquires” is a not so fun surprise that could jeopardize your approval. The rule of thumb here is to wait until the loan is closed before applying for credit. That means no furniture store cards, no new cars, no new electronic store credit cards. Nothing until its closed. Pretty please.

Number 6) Thou shalt not buy furniture or electronics. (Great Transition.) Buying furniture, even if you have the money in the bank to do so, reduces the amount you have to qualify for a mortgage. Opening a new credit card to buy the furniture is a double no-no. (see previous ten commandment).

Just wait until the mortgage closes before you buy furniture. Okay? Your “man cave” can wait to be fully furnished until after the loan closes. It will still be there. Buying the furniture or electronics first is a great way to fumble the loan approval when you’re so close to the goal line!

Number 5) Thou shalt not omit debts or liabilities from your loan application. Part of the mortgage lending process is fully completing the mortgage application. This means telling your Great Mortgage Professional about any debt you have (even if it’s not on your credit). If it’s not on your credit and you don’t put it on your mortgage application, you’re committing mortgage fraud.

Number 4) Thou shalt not spend down payment money. This should go without saying, but (sadly) I can tell you it doesn’t. If you are planning to put down 20% to buy your home, don’t spend it! Number 6 covers furniture and electronics. But don’t spend your down payment money on ANYTHING. It’s your down payment. You need it to close on your home. Don’t give your cousin a loan. Don’t buy new drapes. Don’t pay for your daughter’s wedding (until after you close). Just don’t. Keep the money in the bank until you have keys in hand and the money clears.

Number 3) Thou shalt not use credit cards or miss payments. Remember Commandment 7? Underwriters pull your credit right before you close. Sure. They’re looking to make sure you didn’t originate a new loan. But, they are also looking to make sure you didn’t stop paying a credit card or rack up huge balances.

The larger balances tend to lead to larger minimum payments which impacts your DTI and overall “credit worthiness”.

Number 2) Thou shalt not buy (or lease) a new car, truck, van, boat, airplane, or any other kind of vehicle for that matter. You might start to see the consistent theme among the 10 Commandments of Buying a Home. This one certainly supports the (not so subtle) idea that obtaining new debt before finalizing your mortgage is a poor decision.

Number 1) Thou shalt not change jobs, quit your job, or start a new business. Underwriters call to verify your employment. They also verify a few days before closing. Starting a new business might seem innocent. But, it opens up an entire new consideration that underwriters are not prone to gloss over.

Love my list of 10 Commandments to Buying a Home? I’d love to hear what great advice you got (or wish you got) when applying for a mortgage. Leave a comment below!