Applying for a mortgage can be tough, but it doesn’t have to be. Many first time home buyers make mistakes when applying for mortgage loans that they later regret. In this blog post, we will go over the things you should do before and after applying for a mortgage. If you avoid these common pitfalls, then your mortgage application process is sure to go smoothly!
Avoid Switching Jobs or How You Receive Payment
During underwriting, a loan officer verifies your employment and source of income to determine if you are financially prepared to take on a home loan. They will need easy access to your employment history and your average annual income. Changing jobs while applying for a loan, or changing from salary to commission, lessens the strength of your application since your income isn’t fixed.
Don’t Deposit Undocumented Cash in the Bank Without Talking to Your Lender
Before you deposit any amount of money in your bank account, have a conversation with your loan officer on how best to document transactions so it is more traceable. This is important because your loan officer is in the process of assessing their risk of lending to you. Lenders need to understand the sources of funds before they can release loans or lines of credit and will need documentation for all major transactions.
Don’t Spend Your Down Payment
A down payment is required to provide an equity cushion, which is often necessary for financing the purchase of homes. The amount that’s required varies by lender, but it might range anywhere between 3% and 20%. The loan process will also have closing costs so make sure you have funds set aside to cover those costs.
Skip Acquiring Items with a Hefty Price Tag
Buying a new car, new appliances, or expensive furniture when applying for a mortgage loan is not a good idea. Anything with debt can risk your qualification. Your debt to income ratio (DTI) is carefully scrutinized when you are applying for a mortgage. The higher your debt in proportion to your income, the riskier you are an applicant and the less likely you are to get loan approval.
Becoming a Co-Signer on a Loan is a No-No When Applying for a Mortgage
Again, lenders want your DTI to be low. Anything that raises your ratio will not work in your favor during the application process. Co-signing on a loan raises your DTI since you are committed to pay on that loan if the borrower is unable. Lenders use the DTI to determine your ability to make your monthly mortgage payments. Do everything you can to keep your DTI less than 36%.
Don’t Jeopardize Your FICO Score
The FICO Score is a widely used credit score that lenders look at to determine your eligibility for loans. FICO scores are the most common tool in determining how much risk someone may carry when applying for a mortgage. A good rating makes it easier to get approved. Applying for new credit will lower your FICO score which can impact your eligibility for the loan as well as your interest rate.
Abstain from Closing Credit Accounts
In the case of your credit, less is not always more. Don’t fall into the trap of thinking that closing your credit accounts will make you a safer loan candidate. The opposite is true; closing accounts actually hurts your credit score. A major factor of your FICO score is how long you have had credit and how much of the available credit you have used. When applying for a new loan, make sure you are timely with your payments on all your lines of credit and don’t close any of your current credit. Credit history matters!
A home is one the most important assets you’ll ever have, so it’s essential that your finances are in check. You should always discuss any financial plans with a loan officer before taking action. They will guide and support you so you can have the best chance of being approved.
Your homeownership dream deserves thoughtful planning. Don’t take risks or jeopardize your approval with actions that can be easily avoided. Enlist the help of a professional mortgage company, like First Cost Mortgage Funding, to educate and advise you.
Contact First Coast Mortgage Funding when you need a home mortgage to outline your plan to success. Our company has more than 44 years of experience delivering mortgage solutions to the First Coast region. We make dreams a reality!