Buying a home is a huge decision. There are lots of questions to ask and pros and cons to weigh before you ever commit to making an offer. But, it’s the financial decisions you made before you started shopping—and the story they tell about you—that could prove to be just as critical. Obtain a copy of your credit report before you start shopping, and keep an eye out for the following potential roadblocks.
Credit Cards
Credit card offers have become ubiquitous in most mailboxes. While they can be a valuable piece of your fiscal strategy, how you use them will become a part of your financial tale for the foreseeable future.
Large balances and late payments will certainly be detrimental to qualifying for a mortgage. In addition, if you had a co-applicant for the card, or decided to make another person an authorized user on the account, you will ultimately be held responsible for their decisions as well.
Joint Accounts
Your income, debts, and the ways you managed money in the past are important, but they’re only part of the story. Lenders will also consider whether you have partnered with others along the way.
During the mortgage application process, it’s not out of the ordinary for people to find joint credit cards or bank accounts they have forgotten about—or in a worst case scenario, didn’t know existed. Something from the past, such as being an authorized user on a parent’s credit card, could end up being a problem in the present, particularly if the account has not been kept in good standing.
Similarly, a joint checking account from a past relationship or agreeing to co-sign a small loan for a friend might become an obstacle to financing your home if you aren’t staying on top of your credit report. Remember, signing up for a joint account or adding your name to a loan application makes you fully responsible for it in the eyes of the bank.
Marriage & Divorce
Everyone’s story is different, so in the case of spouses or significant others shopping for a home together, the topics above will apply equally to both people. Not only will the financial decisions you have made together be up for review, but also the choices you made prior to knowing each other.
Shopping for a home post-divorce also means taking extra care to review joint-accounts to determine if they should be transferred to sole account status. Your divorce settlement may also be a key part of your mortgage application since the lender will need to know about any income or obligations due to alimony or child support.