If you were to start the process of buying a home today, what would be the part you find most intimidating? For most home-buyers, first time or fourth, it’s being approved for your mortgage. It’s easy to see why it makes most homebuyers nervous. It’s not the same as buying as buying socks from your local superstore. With your potential future home at stake, you don’t want to do anything that will cause a denial. Being a future homebuyer myself, it’s making me nervous just writing about it. It’s why I want to learn the common mistakes so to make the process go as smoothly as possible. Here are five common mistakes you should always avoid when you apply for a mortgage:
Not getting pre-approved. We cannot stress this one enough. A pre-approval greatly improves your chances of getting your home. Not just getting pre-qualified, but being pre-approved. It’s easy to be pre-qualified. Even I can get pre-qualified, and that’s saying something. A pre-qualification is a verbal discussion on the loan amount you’ll likely be able to receive. Pre-approval, on the other hand, is a thorough review of your finances, FICO Score, income, ending with an official document from the financial institution guaranteeing that you’ll be able to receive the written amount from the bank. If you decide to go through a pre-approval, check with your financial institution on how long your pre-approval is valid.
Applying for a new line of credit. You likely have one (or a few) credit card(s) already in your name. Don’t worry too much about those, but applying for a new credit line can harm the chances of getting your mortgage approved. For one, each time you apply for a new loan, the lender will pull your credit. Credit inquiries ding your credit score and can decrease your score by up to five points. Five points here and five points there can really add up. Having $3,000 worth of credit open to you is great. $30,000 open to you, not so much. Second, applying for multiple loans at the same time is a red flag to lenders. It can signal to lenders that you are desperate for money and can change your mortgage terms or possibly result in a denial.
Leaving your job. The key to a successful closing is consistency. A loan officer wants to see your bills paid each month, as well as having an unvaried income for at least two years. It’s more difficult to do that when you don’t have a job. You want the loan to go smoothly, and losing your income, even if you have a new job in place, brings up question marks in the underwriting department. If there’s no choice but to leave, contact your loan officer as soon as possible and explain the situation.
Making large purchases. Once you’ve found your home, it can be tempting to start buying everything you need to furnish the place. Keep in mind, the home loan department, will look to see if your finances have remained relatively the same throughout the application process. So try to refrain from making large purchases so your fund will remain untouched, just how the mortgage department likes to see it. Sorry for you boat, car, couch, and 4K tv collectors. Because really, you’re not going to need that new couch if you lose out on your new home.
Stalling until you reach a 20% downpayment. You’ve probably heard that you need 20% down to be able to purchase a house. While, having a larger downpayment comes with some advantages, it is not necessary to begin your home search. In fact, a lot can happen in the time it takes to save 20% down. You could be all saved up with no home to go to. Mortgages rates could increase, market conditions could change, and you could miss out on a property that would have been perfect for you. Talk to your lender and discuss a feasible downpayment amount.
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