What I’ve Learned About Mortgages and Manufactured Spending
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As of last week, we are officially 90%-ish through the home buying/selling/moving process. Well, sort of. We’ve already closed on our old house and our new house, and moved all of our stuff to a storage location, so we’re now just waiting for possession (which is still a few weeks out). I guess you could say we’re homeless homeowners…
I originally talked about moving with credit cards in January, but that post was completely research based. This post on the other hand is experience based, now that I’ve completed the process and lived the tell the tale.
If you are in the housing market or plan to be soon, this is the post for you!
Disclaimer: I’m not a mortgage officer, realtor, or financial advisor. This information is solely based on experience.
Old Hard Inquiries Don’t Matter
When I first started researching the best way to prepare for a move while still actively participating in this hobby, I read a lot of mixed suggestions. Some said not to apply for credit cards 1 year prior to moving while others said not to apply 2 years prior to moving.
I was originally set on the 1-2 year waiting period, but after talking with my realtor and mortgage broker, I changed my mind pretty quickly. Apparently, banks (at least my bank) only takes hard inquiries from the last 6 months into account when determining credit worthiness. Because of this, I started my mortgage application about 8 months after my last round of credit card applications.
Don’t Stash Money in Prepaid Products
Regardless of the fact that I had a few hundred dollars stashed in different prepaid products (eg. Paypal, REDcard, Serve), my bank did not take into account any of that money during the application process. For whatever reason, they didn’t deem that money to be disposable, or at least as disposable as the money in my checking account. I assume that’s due to the fact that they see these products as gift cards rather than prepaid products (ie. the money cannot be liquidated easily, which isn’t true obviously.).
Credit Card Balances Only Matter Once
Most banks, err, most good banks only pull your credit once (during a 60-90 day period). That single credit report serves as the basis of your mortgage application, making it quite important. Since all your credit card balances appear on this report, it’s a good idea to pay them off prior to having your credit pulled.
Why is that important? Because the bank(s) assume the worst; that you’re going to pay the minimum on your credit cards every month, which I’d assume hope isn’t the case for most if not all of you. To avoid any issues, I suggest you pay off your balances before starting the mortgage process and don’t spend on them until after your credit is pulled.
Manufactured Spending Doesn’t Seem to Matter
As I mentioned above, the bank(s) only check your credit card balances once (as far as I could tell). So, if you’re making large purchases (eg. buying gift cards) and liquidating the money back into your accounts, you should have no problem. I went light on my manufactured spending while my mortgage was processing, but even the few thousand I did had no effect negative or otherwise.
Your Credit Score Is Important
Since mortgages are loans and loans are affected by credit, this one is a no brainer. Make sure your credit score is in order before applying for a mortgage. You can do this by paying off all your credit cards and letting their statements close (to lower your utilization), avoiding closing no-annual fee cards (to increase your average credit age), and making sure your no payments are missed.
Avoid Reselling
Reselling can be a very lucrative hobby that I highly suggest giving a try, however, NOT while applying for a mortgage. As with prepaid products, mortgages do not take any money you have held in resale items into account when determining your credit worthiness. This process is a whole lot easier when you don’t have your money tied up.
Conclusion
There are a lot of factors that go into a mortgage application, but there are ways to make your approval odds much better by simply following the rules listed above. As I said, I’m not a mortgage broker, realtor, lawyer, or anyone that is in the business of money, mortgages, or housing, but based on my experience, these tips will greatly increase your chance at being approved for a mortgage.
Do you have any tips I missed?
