Going through escrow can be one of the most frustrating experiences of the homebuying process. Even though every detail may seem to be in order, the transaction can fall through for numerous reasons. In many cases, getting things back on track is not only difficult, but impossible.

Most people who have purchased a home in the past are familiar with the escrow process, and know what blunders to avoid. Unfortunately, first-time homebuyers lack the experience and insight. With this in mind, we\’ll present a list of four common mistakes. Use the following as a guide to help minimize unexpected, but preventable, problems.

#1 – Assuming New Debt

When you apply for a mortgage loan, the lender makes a decision regarding whether to offer funding based, in large part, on your financial circumstances. They use formulas to determine how likely it is that you will default on your mortgage payments.

One of the numbers they use is your debt-to-income (DTI) ratio. This is a ratio that reflects the percentage of your monthly income that is used to make debt-related payments. Technically, this is referred to as your \”back-end\” ratio. Your \”front-end\” ratio includes debt, property taxes, homeowners insurance premiums, and other outflows. The mortgage lender is interested in your DTI ratio – they usually use the \”back-end\” number – because it informs them about your ability to afford the mortgage payments.

For example, suppose you have very little outstanding debt. Your lender agrees to extend funding for the home you\’re planning to buy. During escrow, however, you purchase a new car, adding a car payment to your financial picture. In this case, your lender may withdraw the loan, thereby derailing the transaction before it closes.

Don\’t assume new debt during escrow. If you must buy items, do so with cash.

#2 – Opening New Credit Accounts

When you open new credit accounts, two things occur. First, each of the lenders (i.e. credit card companies, department stores, etc.) will conduct a \”hard inquiry\” on your credit history. Multiple hard inquiries can cause your FICO score to decline, which may prompt your mortgage lender to pull the home loan.

The second outcome is that your mortgage lender will recognize that you now have more borrowing capacity. For example, suppose you open a new credit card account with a $10,000 limit. If you \”max out\” the limit, your monthly payments will be between 2% and 4% ($200 and $400, respectively). This may affect your ability to pay the mortgage. Depending on the circumstances, some lenders may decide to withdraw funding for the home.

Don\’t open new credit accounts when buying a home. Wait until escrow closes before doing so.

#3 – Shifting Money From One Place To Another

When you buy a home, your mortgage lender will want to know the source of the money you intend to use to make the down payment. They also want to make sure the funds are stable, partly to minimize their exposure to fraud. It matters little whether the money is inside your checking account, investment accounts, a CD, or a 401K.

The lender will ask you to provide a few consecutive months of statements. This allows them to verify that the funds have remained in one place for an extended period. If you have shifted large sums into and out of the accounts, your lender may request receipts and other paperwork. Be prepared to provide them. If you are unable to do so, the mortgage loan may be withdrawn.

Avoid moving funds around during escrow. Doing so raises red flags with lenders.

#4 – Failing To Seek The Help Of A Real Estate Agent

A lot of homebuyers purchase properties without the help of an agent. In most cases, they do so to avoid paying commissions. This is usually a mistake. Not only can a real estate agent offer price guidance, market insight, and help with negotiating with the seller, but she can also guide the buyer through escrow.

Work with a real estate agent. Leverage her experience and insight, especially during escrow.

The homebuying process has numerous pitfalls. Each one can potentially derail the purchase transaction. Avoid the four mistakes above to make the experience as problem-free as possible.

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Great deals available for Harrisonburg Real Estate and real estate offerings at http://www.ValleyFarmsandLand.com

Author Bio: Great deals available for Harrisonburg Real Estate and real estate offerings at http://www.ValleyFarmsandLand.com

Category: Advice
Keywords: Real Estate, Home, Morgage, Issues, Problems, Own, Family