5 Things You Should Avoid Doing Before Buying a Home

Owning a home is something that many adults dream of. Of course, we’d all love to have a mansion on the side of a cliff, overlooking the ocean, but most of us are pretty happy to settle for something smaller and more reasonably priced that requires far less cleaning and maintenance. Unfortunately, we’re not all so practical when it comes to our finances. As a result, many would-be homeowners commit terrible mistakes that could make it well-nigh impossible to get approved for the massive loan needed to purchase property. So if you’re interested in buying a home and you want to start planning and saving for that outcome, here are just a few activities you should definitely avoid in the months and years leading up to your intended home purchase.

1. Letting bills go to collections. Your credit plays an extremely important role in the home-buying process. Without a proper credit score you cannot gain approval for a loan. Generally speaking you’ll need a credit score of at least 620 to qualify for a home loan, although these day some lenders are seeking only candidates with a score of 650 or higher, thanks to risky lending practices that led to the crash in the home mortgage market several years ago. However, if you want to take advantage of the lowest interest rates you would traditionally need a score of 720 or higher. Some lenders today are actually looking for 740 or more. That said, any bills in collections will create black marks on your credit report that lower you score. So you’ll need to pay them off and clear your report before you decide to buy. Even then, you may have to wait six months to a year for your score to rebound.
2. Taking out loans. The more you owe, the harder it will be to get a home loan. If you currently have student loans, a car payment, or personal loans out, you might want to try paying them down or paying some off prior to house hunting. These loans might not lower your score (unless you’re paying late or missing payments) but shouldering massive debt can certainly make you a bigger lending risk, even if you have the means to pay.
3. Opening credit cards. Whether you’re carrying debt on a single card or you’ve recently opened several new accounts, you could raise red flags with lenders who will question your financial wisdom as well as your ability to pay off a home loan. This is not to say you can’t have multiple credit card accounts and still get a loan, but a clear credit history is preferable, so you need to be careful.
4. Switching jobs. Any lender will want to see a minimum of six months of steady employment history (which is to say with the same company), and some will require a year at the same job and salary in order to qualify for a loan. You may therefor want to avoid switching jobs leading up to applying for home loans.
5. Filing for bankruptcy. There is no quicker way to alienate lenders or your support network of agents and brokers at the Breckenridge real estate group than to file for bankruptcy. On the one hand you’ll walk away with a relatively clean slate, meaning you’ll be debt-free. The downside is that you had to go to court because you couldn’t pay your bills, leaving creditors holding the bag for your poor spending habits. If you can find any other way to manage your debt, like through credit counseling and payment plans, you’ll be a lot better off when it comes time to look for a home, and a home loan.