Top 10 Things Buyers Should NOT Do before Applying for a Home Loan.

Today’s tightened lending market can be so daunting  that it’s enough to keep potential borrowers from even thinking of buying a home. Buyers need the best possible credit report and score. But how many of them know they inadvertently could be hurting their chances of getting approved by doing certain things in the months before applying for a loan? To make sure that doesn’t happen to your buyers, share this list of the Top 10 Things NOT to Do.

1.Closing Accounts

If buyers want their credit score to plummet faster than a B-list celebrity’s status, simply have them close some of their accounts. A lot of people think that closing an account that is paid off or barely used is a good thing, but this is not true. The credit scoring system isn’t built around common sense. When an account is closed, it cuts away at their available credit and also increases their debt to credit ratio. As a rule of thumb, don’t close accounts, especially if they have a high available balance. Simply pay off the balance and leave the account open. If possible, keep the account active by making small purchases every now and then simply to report history. It is a good idea to close accounts only when their available credit is low and if they’re new accounts. It is especially good to close accounts if the above criteria match and the cards have a high interest rate or charge annual fees.

2. Not Using Credit Cards

A lot of the credit card companies are closing accounts that aren’t being used. That’s right; they’re taking on a use-it or lose-it mentality. In these economic times, credit card companies are afraid of just letting anybody sit on a pile of credit. If your buyers have an account that has a lot of history, it is a good idea to keep that account active by encouraging them to use it every so often.

3. Keeping High Balances

Lenders look for people who use credit just right. Not too much and not too little. People who have high balances on their card are a red flag to lenders. It shows they are strapped for cash and are having a hard time making payments.

4. Repeatedly Applying for New Credit

So should clients say yes to every credit offer then? Not exactly. Repeatedly applying for new credit hurts your buyers’ credit scores in two ways First, by opening new accounts, they are decreasing the average age of their credit history. Lenders like people who have a long history of borrowing and paying back on time. And second, credit scores take a hit with every hard inquiry. If your clients get multiple hard inquiries in a very short amount of time, they can start making the lenders very suspicious. A lot of banks and credit card companies try to avoid people who have histories of applying for many things at once, as if desperate. But buyers don’t have to worry that loan shopping will mess up their credit. Multiple hard inquiries on your report within a 45-day window are considered the same as one inquiry.

5. Not Paying Fines or Credit Card Bills

Not paying old fees can have a negative impact on credit scores as well. That’s right, not paying library charges and other minor things such as parking tickets could all end up on a credit report. If your buyers are not paying their credit card bills, tell them that information is being reported to the credit agencies and they are only hurting themselves. Call up the credit card company and work something out with them.

6. Ignoring Errors

If there are any errors on their credit report, correct them quickly as it could take up to 90 days to get changes made. Once buyers have successfully disputed and removed negative items from their credit report, tell them to wait a few months and then order another copy to verify the updates and see if their score improves. Buyers can order a copy of their report directly from one of the three credit bureaus or can get a free copy of by going to www.annualcreditreport.com. They are entitled to a free one each year, but beware of services that charge monthly membership fees.

7. Making Late Payments

Paying late and missing payments will ensure that your buyers’ credit scores drop. With all the technology available, there’s no reason to mail in a payment four days before the due date. Simply make the payment online, free, from the bank, or from the creditor’s site.

8. Being Self Employed

Many banks won’t even touch buyers if they are self employed. Encourage your clients to consider incorporating.

9. Waiting to Receive Gifts

If buyers will be receiving a gift for their down payment, get it now. If they want to buy a house in August, make sure their funds are available by the end of May. If their funds show up within two months of their loan application, they will have to verify where the money came from. If they had to borrow the down payment, the lender will consider this as additional debt that will affect their debt to income ratio.

10. Forgetting Paperwork

Many people often do not submit the full set of documents, making the processing of the loan very difficult. Each missing item will delay the home loan approval. The best strategy is to meet with the lenderonce to turn over the paperwork and not have to field any follow up questions later on. Once all that advice is heeded, REALTORS and buyers can shop together confidently.