II. Don't make any major purchases before or during the process of obtaining your loan.

When a lender examines your loan application in order to determine whether or not to extend credit to you they are examining 4 basic criteria:

  1. Credit History;
  2. Loan to Value Ratio;
  3. Liquid Asset Reserves; and
  4. Debt to income Ratio.

Your Debt to Income Ratio is probably the most important factor that a lender considers in approving you for a loan because it directly reflects your ability to make your monthly payments. To determine your Debt to Income Ratio, a lender will add up the minimum required monthly payments listed on your credit report. Making a significant purchase that requires financing will create an additional liability on your credit report and therefore will increase your Debt to Income ratio. This can potentially lessen your qualifications for a loan. Taking on additional debts can actually lower your credit score. If you feel that you have major purchases that you need to make, plan those out into the future once you are in the home or your financing is complete. If it is absolutely necessary to make the purchase right away, you will want to discuss the possible impacts that the purchase might have on your financing with your loan officer.