It probably comes as no surprise that potential mistakes in the mortgage process can dramatically affect the financing options available, their terms, and ultimately what you’re approved for. For this reason, we contacted Lou Rose, a mortgage professional from LoanDepot, to find out what the most common mistakes prospective borrowers make and how you can avoid them!
Don't make any career changes
Changing jobs, becoming self-employed, or quitting your job can wreak havoc on your mortgage application. Think of it this way, when you’re applying for a mortgage, the lender is looking at your income and what you can reasonably afford. Making changes to your income, or the reliability of it, raises a lot of questions and concerns that the mortgage lender is going to have.
Don't make any large purchases
You may have been eyeing that new car or living room set, but it’s best to delay any large purchase, particularly those that will be financed. Mortgage lenders will look at these large purchases and credit lines as well, and will factor this into the mortgage amount you’re ultimately approved for. This could reduce your mortgage amount by thousands (or even tens of thousands) of dollars. It's generally recommended that you wait until you close on the home and know what you will be able to comfortably afford before making any large purchases.
Don't open or close credit accounts
Your mortgage lender will pay particularly close attention to how much credit you already have and how much you are using (your debt-to-income ratio). This means that suddenly opening new accounts, using more of your available credit, or closing accounts, can have a large impact on what you are approved for. For this reason, it’s recommended that you not open or cosign for any new accounts and that you hold off closing accounts until after closing.
DO look at all of the mortgage options available
Many first time home buyers don’t realize, but there are many different mortgage options available. A mortgage professional can discuss the options available to you, and which ones will best suit your needs. You may be surprised to find how well some of these options fit your needs and lifestyle!
DO save money
Between the down payment and closing costs, you’re going to have to come up with a decent bit of cash at closing. While you’re probably already thinking about (and budgeting for) this expense, that’s not all you need to consider! You may want (or need) to complete a home project or two right away, upgrade appliances, or purchase some new furniture. These savings will be a tremendous help as you get settled in your new home.
DO pay down debt and keep accounts current
Are you carrying a balance on your credit cards? If you’re able, paying down these balances will lower your debt-to-income ratio, increasing the amount your mortgage lender will be willing to approve you for!
DO think about what you are comfortable spending
While your mortgage lender works very hard to determine what you should be able to afford, no one knows you or your spending habits as well as you do. Give some serious thought to what you will be comfortable paying each month, and look at homes that are priced in this price range. Stretching too much can make unforeseen expenses, such as car repairs and home maintenance costs tougher on your budget than they need to be.
Purchasing a home is a very exciting new chapter of your life, and we’re sure you want the mortgage process to go as smoothly as possible. Now that you know what to do and what not to do, all that’s left is applying for the mortgage and finding the home of your dreams!
We appreciate Lou taking the time out of his busy schedule to provide us with such great information about the mortgage application process and how to avoid some common pitfalls! Should you be looking to start a house hunt, Lou can be reached at (570) 702-1385.
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