When you’re in the process of buying a home, you need to be careful with your finances because you’re dealing with some of the largest transactions. One of the most common mistakes people make when buying a home is depositing large sums of cash. Lenders need to source your money, and cash isn’t easily traceable. Therefore, before depositing any cash into your accounts, it is essential to discuss the proper way to document your transactions with your loan officer. In this blog post, we’ll explore some reasons why you should avoid depositing large sums of cash and some tips to ensure that you’re not disqualified from your loan.
Don’t Deposit Large Sums of Cash
When depositing large sums of cash, it’s tough for the lenders to determine where the funds came from. Additionally, large cash deposits can have tax implications, which could affect your mortgage application. Therefore, it is always best to avoid depositing large sums of cash into your accounts.
Don’t Make Any Large Purchases
Aside from making huge purchases related to home buying, you should avoid making any significant purchases. Large purchases can be red flags for lenders, as it shows that you might have difficulty repaying your mortgage.
Don’t Co-sign Loans for Anyone
When you cosign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes a higher debt-to-income ratio. Even if you promise you won’t be the one making the payments, your lender will have to count them against you.
Don’t Switch Bank Accounts
Lenders need to source your assets, making it much easier when there’s consistency among your accounts. Therefore, it’s best not to switch bank accounts before or during the home buying process. Before transferring any money, speak with your loan officer.
Don’t Apply for New Credit
When you apply for new credit, like a credit card or a new car, it will impact your FICO score. When your credit report is pulled by various financial channels, it is a cause for concern that you’re taking on more debt than you can handle.
Don’t Close any Accounts
Many buyers assume that having less available credit makes them less risky and more likely to be approved. But the rationale for that belief is incorrect. Credit scores are calculated based on credit utilization, and by progressively closing accounts with limited balances, you reduce your total credit limit and increase the ratio of credit utilized to the available credit.
Buying a home is a significant transaction, and you need to be careful with your finances. The steps discussed above (not depositing large sums of cash, not making huge purchases, not cosigning loans for anyone, not switching bank accounts, not applying for new credit, and not closing any accounts) can help you avoid getting disqualified from your loan application. It’s essential to work with a loan officer who would advise you on the best practices for keeping your finances in order during the home buying process. By following these tips, you can secure your dream home without any concerns about failing to qualify for a mortgage loan.