Insider advice on how to make sure your first home purchase is a success.
Lennar Mortgage loan officers Rachel Alcaraz (NMLS #946629) and Haley Aivazian (NMLS #1512517) have seen it all: They've seen families go from renting tiny apartments for years to experiencing the dream of buying a brand-new home in just months. But they've also seen deals delayed, complicated, and even blown completely when unsuspecting new buyers make innocent mistakes.
"It is so important for a buyer to have a good relationship with your loan officer," Rachel says. "We're spending anywhere from 30 days to six months with a customer, and during the time they are in escrow, a lot can change," she says.
This is why knowing which financial moves and purchases to make or not make is crucial, Haley adds. "Prices are continuing to skyrocket, so the better your FICO scores, the better your rate and payment will be which will make a home more affordable. Knowing what pitfalls to avoid and what little tricks and decisions to make can really impact how smoothly the process goes, and how much you end up paying over the life of your loan."
Here, the two share their must-follow tips for first-time homebuyers:
Don't let your credit card balance go above 30 percent utilization.
This means you only use up to 30 percent of the available credit on your card. "For your FICO score, the credit bureaus view 30 percent as the magic number," Haley explains. "It could affect your qualifying for a loan, and it is a big factor in your FICO score so it could fluctuate your credit score which in turn affects the calculation of your interest rate, private mortgage insurance, and total monthly mortgage payment."
Don't put any large purchases on your credit card.
"Sometimes it's fine, but sometimes it's not," says Haley. "If it's within the last 30 days, even if it is acceptable, we have to go through sources of documentation, and that can delay things and impact your closing rate."
Don't keep large balances on your card.
"It brings down your credit score, and ties into your utilization and FICO rate again," Rachel says. "Also when you carry higher debts your minimum monthly payments on the card could be higher which will affect your qualification. But the bigger issue is what it does to the scores."
Don't make any purchases that would result in debt without consulting with a loan officer.
"I have a lot of customers who want to buy things for their new house that could involve financing—things like furniture, appliances." Which is understandable, but again, financing large purchases changes your debt to income ratio and loan eligibility. When is it safe to make that big purchase? "When you have the keys to your new house in your hand," Rachel says. Her advice? Spend normally, pay it off regularly, and try to avoid the large purchases. "You want your spending track record to stay consistent," she says.
Don't co-sign any loans for a family member.
This usually comes in the form of innocently wanting to help an adult child buy a car or a house, but, as Haley explains, "Most people don't realize it shows up on their credit report. If you guarantee or co-sign, you are essentially responsible for the entire loan," she says. And that, of course, impacts your debt-to-income ratio.
Don't deposit any cash that cannot be sourced, and don't pay off credit with funds that can't be sourced.
If you are making large deposits or paying off something like a car or credit card, you must show that these are your own funds or acceptable funds—not cash," Rachel says. Acceptable funds for debt, credit pay off or a down payment have to be sourced with a paper trail—something like a check—in order to stay compliant with the Patriot Act (to avoid money laundering) and ensure the money isn't a cash loan that would impact your ratio.
Don't open any new accounts.
This one is tricky. Opening anything new that has a line of credit will change your circumstances and impact your DTI ratio. This includes things like a Kohl's card to unlock a discount, or an airline miles card. Even when you make an online purchase and are offered to choose to make "four equal payments with no interest," that's a form of financing—and all of these will show up on credit reports. "You are financing something, and if you miss a payment it affects you just like any other loan," Rachel says. "So now is not the time to open those."
Being a first-time homebuyer is filled with plenty of firsts and new information, so it makes sense to have an experienced loan officer on your team. Visit LennarMortgage.com to find out about loan options that might be a fit for you, and connect with one of our loan officers.