Paying off a credit card, moving to a higher paying job, or buying a new car all sound like great ideas. They are good things except when you are buying a home. Although it sounds counterintuitive, even favorable actions like paying down a credit card balance can have a negative impact on your ability to receive a mortgage.
When you apply and receive a pre-approval for a mortgage for a house in Locust Grove or anywhere, it is based on the financial information that you provided the lender at that particular moment in time. Any changes a buyer makes can change that financial picture. For example, you pay off a credit card and close the account. By doing so, your credit score might lower and your debt to income ratio may change. These changes may cause you to no longer meet the guidelines for your loan.
What is debt to income ratio? Your debt to income ratio is all your monthly debt payments (car, home, credit card, ect) divided by your gross monthly income. This calculation gives you a percentage of how much money is spent per month on debts. Most lenders look for a debt to income ratio below thirty five percent.
Likewise making a big purchase through financing like a new car or appliance package for your new house in Locust Grove can negatively impact your debt to income ratio. It’s not just credit cards. Taking a large sum of money out of your bank account to pay for new home items or depositing a gift from a family member can also change your debt to income ratio. Although you may be eager to have things in place for your new home, it’s always best to wait until after closing day to make those purchases.
Accepting a new job with a larger paycheck is always a great thing. However, when it comes to getting a mortgage, making a change of employment can cause delays or denials. Mortgage lenders need to see that you have a stable income and employment. Buyers are often asked to provide proof of two years of consistent employment. When a buyer changes jobs, it is concerning to lenders because that continuous proof of employment has been interrupted.
In general, when you are buying a house in Locust Grove, press pause on all financial changes until you close on the home. This is the best way to make sure your financial picture stays the same. Is there something absolutely necessary for you to do? Before you think about making any charges on your credit card, accepting a new position at work, or depositing a house warming gift into your account, talk with your mortgage lender. Your lender will be able to give you the best advice for your individual situation.
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