What to Avoid During a Home Purchase

What's more fun than getting a bunch of new furnishings to go in your future home? Nothing. But making large purchases before closing could be trouble. It's wise to remember that until you get the keys, your lender is watching your finances very closely. Here are some actions to refrain from before closing to assure the transaction goes well.

Don't overspend on big-ticket items You may be itching to turn your new living room into a home magazine cover, or celebrate your new castle, but stay away from big purchases like furniture, cars, appliances, or vacations until closing. Financing your bedroom furniture with a store card or a bank credit card could jeopardize your credit worthiness when you need it the most. Using cash to buy big-ticket items can also be a bad idea: many banks consider your cash reserve when approving your loan.

Don't look for a new career. Stability in your job history is a good thing to lending institutions. Getting a new job before you apply for a mortgage may not affect your approval at all. However, switching careers during the application process may influence your approval.

Don't move finances around or change banks. As your lending institution considers your loan application, you will likely be asked to submit bank statements for the last few months on your checking accounts, savings accounts, money market funds and other liquid finances. To avoid potential fraud, most lenders want a detailed paper trail to verify the source of all incoming funds. Even for innocent reasons, moving around cash or switching banks could make it more difficult for your lender to verify your account history.

Don't give funds directly to your seller (generally in the case of of "for sale by owner") to be considered earnest money. As a rule, your earnest money belongs to you, not the seller up until the deal closes. Although some FSBO sellers might not understand this, your good faith money should be used for the buyer's closing expenses. You'll need to put the deposit into a trust account, or get an attorney to hold it until the deal closes. The disposition of earnest funds, in the case of a failed transaction, should be specified in the purchase agreement with your seller.

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