You’ve pre-qualified for a mortgage. The owners or builders of your dream home accepted your offer. Your real estate agent is helping you navigate through the escrow process, and all you have left to do is wait, and fantasize about making your new house yours.
It’s tempting to go out and buy new furniture, decorations, and all the stuff you think you’ll need when you move to your new home. You’ve got the floor plan emblazoned in your mind, and you’ve imagined exactly where you’re going to set up that new flat screen, or how you’re going to organize your closets and garage.
A lot of home buyers don’t know that their spending habits in the period between the loan pre-qualification process and the day you sit down to sign your closing paperwork can completely derail the process, costing you your new home. Sure, you still need to buy groceries, pay the bills at your existing home, and stock up on packing and cleaning supplies as you get ready to make the leap, but some activity is a big “no-no” to lenders.
And your lender is watching you like a hawk.
What NOT To Do During Escrow
If you’re selling your existing home or hoping to get back the deposit on a rental, our standard advice is to hold off on throwing that huge “moving out party”. Cancel the death metal band, return the kegs, and see if you can replace the seals on the booze you’ve stocked up.
Beyond that, you’re going to have to be conservative on your finances. Here’s how:
1. Don’t Buy or Lease A New Car
Even if you get a new ride every two years, or you’re embarrassed for your new neighbors to see you roll up in that rusty bucket you’ve had since your freshman year in college, now’s not the time to switch up your ride. Hold off on getting that minivan, even if it means your toddler will have to duck her head in shame as you drive through the drop-off point at her daycare center.
High-interest car loans, lease payments, and cash down payments affect your debt-to-earnings ratio and, in the eyes of your lender, threaten your ability to meet your closing obligations and mortgage payments.
2. Don’t Sign Up for Deferred Loans
It doesn’t matter if you don’t have to make that first payment this month or next year; you’ll be paying your mortgage for a long time, and those payments will increase your risk in the minds of financial institutions. Like we’ve said, Lenders are very concerned about your monthly expenses.
3. Don’t switch jobs
If you’re only making a lateral move, or even if you’re in for a major bump in salary, your lender will have to go through the whole validation process to make sure everything’s legit. Don’t make your lender deal with more paperwork. They hate that. Plus, they might see you as a “job-hopper”. They hate that more.
4. Don’t forget to alert your lender to an influx of cash
Many home buyers, especially first-time home buyers, have to scramble to get their cash together for the balance of their down payment, as well as for any closing costs. Whether your bank account is getting fat thanks to deposits from family, cashed-in investment accounts, liquidation of your dad’s collection of original Led Zeppelin LPs or heck… a GoFundMe campaign, your lender will want to know. Their main concern is that this income is “no strings attached,” requiring loan repayments.
It should go without saying that you should never take out cash advances from existing lines of credit, but we’ll say it again: DO NOT use cash advances from existing lines of credit! And be careful of looting your investments, because tax penalties can add to your financial obligations.
5. Don’t Run Up Credit Card Debt (or Open New Credit Card Accounts)
Whether you’re using your credit cards to pay regular bills—thinking you’re holding on to your down payment cash stash—or you’re going nuts buying stuff for your new abode, you don’t want to run up your credit card debt. Nor do you want to open new credit accounts, like those offered through department stores and chain home improvement establishments. You’ll make your lenders shriek in terror, because—sing along with us—DEBT-TO-INCOME RATIO!
6. Bonus Advice! Don’t Chew Your Nails
Because it’s gross, and you’ll need them to peel that packing tape when it gets stuck to the roll. If you’re nervous, go check out your new neighborhood for yoga classes, or spend a day exploring the area.
What You SHOULD Do During Escrow
Now that we’ve covered the scary stuff (and if you have a CPA, you might ask her for more warnings… maybe check in with your lender if you’re ever in doubt) it’s time to discuss how you can burn off all that pre-closing nervous energy!
1. Maintain Your Credit Score
Did you spend the last two years raising your credit score? Keep up the momentum! A good credit score will help you your entire life. Even employers tend to check a prospective new hire’s credit to determine whether or not you can behave like a grown-up… even if you do buy that minivan after you close.
2. Pack Up Your Old Home (Duh!)
Check our tips and timeline for packing up your existing home. The sooner you get started, the less stress you’ll experience when it’s time to pick up your new set of keys!
3. Set Up New Utility Accounts
You know how those cable companies can be. If you need to have new cable access ports installed, or your cable company has to send someone over to upgrade your service, you might want to find out how long their turnaround might be.
Many utilities simply change over the names and billing information on existing accounts, so this is the best time to find out how and when you’ll need to make the switch.
4. Contact Your Insurance Brokers
Lay down the groundwork for your home insurance, and if you’re a first-time homeowner, take advantage of bundled auto and home policies. If your agent needs to send someone to your new home for an assessment, now’s the time to set that appointment.
5. Plan Your Housewarming Party
Remember that band you canceled? Call them up. As long as you don’t have to pay them until you move in, you can introduce yourself to your new neighbors in a really big way. Don’t forget the beer, and don’t forget to invite your friends at 13th Floor Homes. If you’ve purchased property in one of our South Florida communities, we’ll know how to get there!