If you’re getting ready to buy a home, it’s exciting to jump a few steps ahead and think about moving in and making it your own. But before you get too far down the emotional path, there are some key things to keep in mind after you apply for your mortgage and before you close. Here’s a list of things to remember when you apply for your home loan.

Don’t Deposit Large Sums of Cash

Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any cash into your accounts, discuss the proper way to document your transactions with your loan officer.

Don’t Make Any Large Purchases

It’s not just home-related purchases that could disqualify you from your loan. Any large purchases can be red flags for lenders. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.

Don’t Cosign Loans for Anyone

When you cosign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes higher debt-to-income ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count them against you.

Don’t Switch Bank Accounts

Lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.

Don’t Apply for New Credit

It doesn’t matter whether it’s a new credit card or a new car. When your credit report is run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), it will have an impact on your FICO® score. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.

Don’t Close Any Accounts

Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those parts of your score.

Do Discuss Changes with Your Lender

Be upfront about any changes that occur or you’re expecting to occur when talking with your lender. Blips in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. Ultimately, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.

Bottom Line

You want your home purchase to go as smoothly as possible. Remember, before you make any large purchases, move your money around, or make major life changes, be sure to consult your lender – someone who’s qualified to explain how your financial decisions may impact your home loan.

If you’re looking to buy a home this fall, there are a few things you need to know. Affordability is tight with today’s mortgage rates and rising home prices. At the same time, there’s a limited number of homes on the market right now and that’s creating some competition among buyers. But, if you’re strategic, there are ways to navigate these waters. The first thing you’ll want to do is get pre-approved for a mortgage. That way you’ll know your numbers and can set yourself up for success from the start of your home search.

What Pre-Approval Does for You

To understand why it’s such an important step, you need to know what pre-approval is. As part of the homebuying process, a lender looks at your finances to determine what they’d be willing to loan you. From there, your lender will give you a pre-approval letter to help you know how much money you can borrow. Freddie Mac explains it like this:

“A pre-approval is an indication from your lender that they are willing to lend you a certain amount of money to buy your future home. . . . Keep in mind that the loan amount in the pre-approval letter is the lender’s maximum offer. Ultimately, you should only borrow an amount you are comfortable repaying.”

Basically, pre-approval gives you critical information about the homebuying process that’ll help you understand how much you may be able to borrow. Why does this help you, especially today? With higher mortgage rates and home prices impacting affordability for many buyers right now, a solid understanding of your numbers is even more important so you can truly wrap your head around your options.

Pre-Approval Helps Show Sellers You’re a Serious Buyer

Let’s face it, there are more buyers looking to buy than there are homes available for sale and that imbalance is creating some competition among homebuyers. That means you could see yourself in a multiple-offer scenario when you make an offer on a home. But getting pre-approved for a mortgage can help you stand out from other hopeful buyers.

As an article from Wall Street Journal (WSJ) says:

“If you plan to use a mortgage for your home purchase, preapproval should be among the first steps in your search process. Not only can getting preapproved help you zero in on the right price range, but it can give you a leg up on other buyers, too.”

Pre-approval shows the seller you’re a serious buyer that’s already undergone a credit and financial check, making it more likely that the sale will move forward without unexpected delays or financial issues.

Bottom Line

Getting pre-approved is an important first step when you’re buying a home. The more prepared you are, the better chance you have of getting the home you want. Connect with a trusted lender so you have the tools you need to purchase a home in today’s market.

Between applying for a home loan and the close of escrow comes a most crucial step: the home appraisal. Since the transaction that got you to this point is one in which a buyer and seller agreed on a price, the appraisal is more likely than not to match the purchase price.

In fluctuating markets however, especially those heading up after being down for some time, low appraisals occur frequently. For instance, as the nation climbed out from under the explosion in distressed sales, it took some time for home appraisals to even out. It is understandable, given that appraisers were basing market value on homes that had foreclosed or sold via a short sale.

Although there is nothing a homeowner can do about nearby houses that bring down market values in the area, there are things he or she can do to help achieve a higher appraisal.

1. Arm the appraiser with accurate information

"The reality is that the appraiser is only there for 30 minutes at most," Brian Coester, chief executive of CoesterVMS, an appraisal management company, tells CNBC.com. Thirty minutes to make a good first impression when the appraiser is distracted with appraisal duties is a tall order.

Put together an information packet that the appraiser can take with her when she heads back to her office to crunch the numbers. Here are some items to include in the packet:

• The facts – Make a list of the facts about your home, including the street address, number of bedrooms and bathrooms and the year it was built. Yes, the appraiser has access to these details, but verification from you can’t hurt.

• A list of recent sales – The appraiser has access to area home sale prices but there is always a possibility of an error or two creeping in. Ask your real estate agent to print out a list of comparable homes in the area that have recently sold for prices that help justify your price.

• Inside information -- In addition, any information you may have that the appraiser can’t possibly be aware of – such as the fact that your next door neighbor sold his home at a drastically reduced price to be able to quickly relocate to his new job out of town – should be included as well.

• Improvements – Let the appraiser know about improvements you’ve made to the home, the date they were made and the contact information for the contractor who performed the work. Include information about new floors, windows, countertops and a new roof. If you finished the basement, list that. Any work on or replacement of major systems should go on the list.

2. Spiff it up

While you don’t need to stage your home for the visit from the appraiser, you do want the home to appear as if it’s been maintained.

“Things like overgrown landscaping, soiled carpeting, marks on walls — those do affect value and are part of the property’s overall condition rating,” Dean Zibas, of Zibas Appraisal in San Clemente, Calif. tells the Wall Street Journal.

Certified residential appraiser Ralph J. Vaccari, of Marblehead, Mass. agrees. “It’s important to realize, though, that a dirty or unkempt home can increase its appearance of wear and tear beyond normal, and that condition can, in fact, affect value.”

So get busy cleaning up the landscaping and spiffing up the interior of the home in advance of the appraiser’s visit.

3. Make repairs

The appraiser will assign an “effective age” to the home which is based on the condition of the home and any updating performed.

“Say you have a cracked window, thread-bare carpet, some tiles falling off the shower surround, vinyl torn in the laundry room, and the dog ate the corner of the fireplace hearth, these items could still add up to an overall average condition rating as the home is still habitable, however your effective age will be higher resulting in comparables being utilized which will have the same effective age and resulting lower value,” Doreen Zimmerman, an appraiser in Paradise, Calif. tells the Wall Street Journal.

Make the repairs that, if not made, will age the home in the eyes of the appraiser. Some of these may be as simple as replacing torn window screens, others may be more substantial.

While the sales prices of comparable properties are relied upon heavily to ascertain a subject property’s value, appraisers do not solely rely on them. All pertinent data, including intangible aspects, help determine the closest estimate of the value of a property. These are the aspects of the appraisal process that you can affect.

Buying real estate means also buying insurance ― several different types, in fact. Private mortgage insurance (PMI) is sometimes demanded by the lender to ensure the loan is repaid if the borrower defaults. Homeowner’s insurance is a necessity to protect the lender’s financial interests.  

Then there is title insurance, one of the least understood forms of insurance required during the home purchase process, if you use a mortgage to buy the house.

What is it?

Title insurance is a policy required by the lender to protect it from any other claims to or liens against the property. These items are known as “clouds” on the title and some of the more common include:

•       Unpaid taxes
•       Fraud
•       Forgery
•       Not including all of the owners’ signatures on the title
•       Undisclosed heir of a previous owner

The Process

Shortly after escrow opens on your home purchase, someone will order a title search. Who this “someone” is varies by region but it is typically the buyer’s attorney or real estate agent.

The title company or investigator will examine public records, looking for legal ownership of the property and to determine if there are any claims or liens. He or she will follow the “chain of title,” or all previous owners to ensure there are no previous clouds on the title.

When the investigation is complete, the homebuyer is issued what is known as a preliminary title report, listing any findings of the investigation. The insurance policy guarantees that all is well with the property’s title.

The Two Types of Title Insurance

There are two types of title insurance, the owner’s and the lender’s policies. The former is usually issued for the same amount as your loan and is valid for as long as you or your heirs own the home. You will pay just one fee for the policy at closing. This insurance is not mandatory.

The lender’s policy, on the other hand, is a lender requirement and it protects the lender in the event that a claim is presented that wasn’t found during the title search. You will pay the annual premium for the life of the loan.

The party that pays for the title insurance varies by region and the cost at closing can be significant. Remember, the lender’s policy is required and the homebuyer derives no benefit from it should a problem pop up. You will only be protected with an owner’s policy.

Unless you'll be paying cash for a home or you are applying for a loan backed by the government (such as a USDA or VA loan) or a Fannie Mae or Freddie Mac loan, you'll need at least 20 percent of the loan amount in cash. This is the down payment, required by the lender.

The larger the down payment, the more attractive the interest rate will be. The down payment may also determine whether or not you'll be required to purchase private mortgage insurance (PMI).

You’ll also need cash for closing costs, which can add up to a significant amount of money by the time we get to closing. Some fees are negotiable and the total amount due varies. I counsel my clients to save at least 3 to 4 percent of the loan amount, just to be safe.

If you’re not a saver ― and millions of Americans aren’t ― it’s time to get into the habit. Not only will you need savings for the cash layouts of buying a home, but for its ongoing maintenance as well.

Set up a Budget

Setting up a budget is challenging but sticking to it is worse. If you have personal finance software with budget-making tools, creating the budget will be a snap. Financial guru Dave Ramsey EveryDollar® Budget Tool online and its free. Otherwise, use a spreadsheet.

The first step is to know exactly how much money you bring in every month. You’ll then need to list your fixed expenses – those that remain the same every month. Examples of these expenses include your car payment, insurance and rent or fixed mortgage payment.

Variable expenses, such as what you pay for electricity, groceries and your phone, come next. Keep track of your spending every day and enter the numbers into the budget on a weekly basis.

This budget is a snapshot of where you are spending your money, where money is being wasted and whether you are spending more than you can afford. With this knowledge you can direct your resources so that you keep up with bill payments and start saving money toward the goal of purchasing a home.

Make Lifestyle Changes

After a few months of budgeting you’ll find areas where you can cut back. Some of these might include taking the bus to work instead of driving, bringing your lunch from home instead of eating out, shopping at discount stores and using coupons.

Everywhere you can make cuts in the budget allows you to put more money toward paying down debt and saving money, thus putting you one step closer to solvency and the purchase of your new home.

Save Money

When your debts are paid off you can use the money that you had been using to pay them down to start building a savings account for those cash layouts involved in the home purchase.  

As you build your savings, avoid the urge to add to your debt. Keep that house you want top-of-mind to motivate yourself to stay out of debt and remain solvent.

Congratulations on taking the initial steps toward ensuring you receive the most amount of money, at the lowest price, from a lender.

Last time we looked how lenders determine your rate and your credit worthiness based on your credit score. We suggested that you order your credit reports from the “big 3” credit reporting agencies.

When you receive your credit reports look for mistakes or anything else you can challenge. According to a CBS News report, about one out of every five credit reports contain errors. The study also found that one out of 10 of these errors are serious enough to diminish the consumer’s chances of obtaining credit.

Common errors found in credit reports include:

• Other people’s accounts listed as the consumer’s.
• Incorrect personal information, such as birth date and social security number.
• Closed accounts listed as open, with outstanding debt.
• Accounts in good standing aren’t listed in the report.

Dispute anything in your report that appears to be a mistake. The credit reporting agencies, by law, must investigate your dispute and correct inaccurate information within 30 days.

Your FICO^® Score

Thankfully, your credit score isn’t etched in stone but rises and falls according to how you use credit. There are several ways to boost your FICO^®.

Start by paying off accounts that you’ve fallen behind on. Late pays count heavily against mortgage borrowers. Here are a few other ways to help clean up your credit history:

• Pay down other debts, starting with the one with the highest balance.

• Pay down credit card balances that are at the credit maximum and keep the balances low.

• Don’t close old credit accounts – they’re good for your score.

• If you don’t have a credit card, apply for one, use the credit sparingly and pay the balance every month. Applying for the card will lower your score but if you use the card responsibly, your score will rise.

Although these tasks may seem time consuming, if they raise your credit score a few points, it will be worth it when you go to apply for a mortgage.

Even after a bankruptcy, "it's not uncommon for people to see their credit scores skyrocket up into the 700s if they have absolutely no late payments or collections,” says Chris Bridges, former credit and identity theft consultant with Vision Credit Services in Washington, D.C.

Please join us next time for Step 3 in the home-buying process.

It may not seem like it, but there is a process to buying a home and taking certain steps in the proper order just about guarantees success. Taken out of order – putting the cart before the horse – the steps are inefficient and counterproductive, and the process becomes chaotic.

Remember when you were learning algebra? If you tried to take a shortcut, you would get the wrong answer. The steps are there for a reason, and they simply must be followed, in order, if you’re to be successful.

Over the next three posts, we’ll take a look at the three steps you must take before looking at even one home for sale.

Today we look at the first step: Figuring out where you stand financially. If you’ll need a mortgage loan, this is the most critical step in the process and it can make or break your house budget.

Step 1: Check Your Credit

When faced with a loan application, the first task on a lender’s to-do list is to order the applicant’s credit reports and determine his or her credit score. This score is produced by Fair Isaac Corporation – and is known as your FICO^® score. This score not only reflects your credit risk but will be used in the determination of the interest rate you’ll be offered.

Calculated from the data in your credit reports, FICO^® credit scores range from 300 to 850 and FICO^® uses five categories in the calculation:

• Payment History: FICO bases 35 percent of its score on your payment history.
• Account Balances: 30 percent of your score is based on your current account balances, listed in your credit reports.
• Length of Credit History: This category is used to determine 15 percent of your credit score.
• New Credit – 10 percent of your credit score depends on new credit obtained.
• Types of Credit – the types of credit you use accounts for the final 10 percent of your FICO^® score.

This formula is not set in stone. People who have short credit histories – young people for instance – are weighted differently than those with long credit histories.

You are entitled to a free copy of your credit report from each of the three major credit reporting agencies once a year. Make sure you order the reports at AnnualCreditReport.com, the only site authorized by the federal government.

Next time, when we take a look at Step 2 in the home-buying process, you’ll learn how to clean up your credit and raise your score.