A New Life, New Home, New Mortgage

Are you entering a new phase in your life and looking for a new home to match? A major life transition often involves a new home, be it getting married, relocating to a new job or retiring. However, with mortgage credit being as tight as it is these days, there are some pitfalls you want to be sure to avoid.

First, don’t run up a lot of new charges on your credit cards. This is one of the most basic and obvious rules of qualifying for a mortgage, but it’s one that’s easily overlooked when you’re in a life transition. Wedding expenditures, expensive trips, an extensive new wardrobe, new golf clubs or other pricey toys – all can drive up your credit balances very quickly. Best to hold off on the spending until the new house keys are in hand.

Similarly, avoid opening new lines of credit. This can include new credit cards, but also can be other major purchases as well. A new car to go with that prestigious new job or a boat as a retirement gift to yourself may be what you’ve always wanted, but they could make lenders a bit uneasy when evaluating your loan application. You may not get turned down flat, but you could find yourself paying a higher interest rate than you might have.

One of the biggest rules of applying for a mortgage is, don’t quit your job immediately beforehand. Retirees, this means you! You’ll find it a lot easier to qualify for a new mortgage if you do it while you’re still earning your regular income, rather than trying to qualify on the diminished payout you’ll get from a pension or retirement account.

If you’re changing jobs, you might want to nail down the new house before you start the new job. While a boost in income can make it easier to qualify for the mortgage you’re seeking, the fact that it’s a new and untried position may cause some lenders pause.
If you’re getting married on the other hand, you may want to wait until the knot is tied before mortgage shopping. Or, at the very least, unite your finances before the ceremony. You’ll find it a lot easier to qualify for a mortgage with a combined income than if you’re trying to do one on just one person’s credit.

However, if one of the two of you has damaged credit, it’s best to apply for the mortgage and buy the home under the other person’s name and finances alone. That way, the two of you won’t be handicapped by the one partner’s lower credit score.

If you’re looking to upgrade from your current home, you may find it difficult to qualify for a new mortgage if you still owe on another. That’s particularly true if you’re underwater on the loan, or owe more than the property is worth, and especially so if you’re looking to buy a new home in the same community as the old. Lenders are leery of homeowners who are seeking to “buy and bail” – obtain a mortgage for a new house at today’s reduced market prices, then dump the old one once the new property is in hand. You may find that you need to put some more money into your old mortgage, at least bringing it to a positive equity position, before you can qualify for a new one.

A final mistake many people make is failing to check out their credit before applying for a new home. This can be a problem for well-established persons who are entering retirement or taking on new jobs, and who assume their finances are in order. However, anyone can have major errors on their credit reports. These can be corrected, but it takes time – it’s best to order your reports from all three major credit reporting agencies at least six months before you plan to purchase to allow time to call attention to and correct any mistakes.