What Not to Do When Applying for a Mortgage

5 Things to Avoid When Applying for a MortgageObtaining a home mortgage can be the biggest financial step people take during their lives. When hundreds of thousands of dollars are on the table, lenders want to be absolutely sure that borrowers are up to the task of paying it back on time. This means that applicants must be careful with the financial decisions they make before, during, and at the conclusion of the mortgage process. These tips caution home buyers against doing things that could jeopardize their ability to secure the loan.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

1. Fail to Check Credit Reports in Advance

Potential home buyers who have not examined their credit reports in years might have no idea what it may contain. A forgotten medical debt that went to collections, or an outright error showing late payments, could risk an applicant’s chances of getting a loan. The trouble is that any mistakes could take months to resolve. Potential home buyers may want to get a copy of their credit reports at least six months ahead of the time they want to get mortgage pre-approval. This provides enough time to evaluate the report, dispute errors, and confirm that the current report is accurate.

2. Apply for New Credit

Although new accounts only factor for a small portion of a borrower’s credit score, they can be alarming to lenders. Opening a fresh account from time to time is an expected part of adult life. Several accounts at once may indicate to the lender that people are planning to accumulate a lot of revolving debt. Applicants should avoid applying for any new credit until after they have closed on the mortgage loan. Even applying for a loan to buy furniture or pay for moving expenses a week before approval could change the factors of the loan.

3. Accumulate a Significant Amount of New Debt

Carrying new debt could also affect a borrower’s buying power. The amount of money buyers can get in a mortgage is tied to a ratio of the monthly mortgage payment and any other debts in relation to applicants’ income. The maximum most lenders will approve is 45 percent of people’s gross income, including all debts. A radical increase in the amount of debt someone carries month-to-month could leave less money available for the monthly payment. Buyers should try to minimize their non-mortgage debts as much as possible, especially in the months leading up to their application.

4. Change Jobs or Income Sources

Mortgage approval is often based on a pattern of reliable income, usually proven through regular employment. Changing jobs, especially to a position that pays less, throws this presumption into chaos. Many lenders understand that people who are relocating for a new job might want to buy a home when they move. They may be willing to consider employment acceptance letters as evidence of employment. Otherwise, buyers should time the Apple Valley home purchase to a time when they are less likely to change employment.

5. Spend Savings

If people are wary of spending too much on credit cards, they may be tempted to tap their savings instead. People who do not have extensive assets may prefer to reduce their expenses generally until after closing. Closing costs can be 2-5 percent of the home’s sale price, or $4,000-$10,000 for a $200,000 home. This does not include the down payment. Keeping as much money as possible in liquid savings will help buyers be better prepared for this cost.

Buying a home is a significant financial event, and buyers should take it seriously. By following this advice and contacting a reputable home mortgage lender or broker, people can avoid causing trouble with their mortgage applications and smooth the path to approval.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

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