Getting a mortgage can seem intimidating, especially if this is your first time going through it. But with some guidance and access to helpful resources, navigating this step-by-step process should become much smoother for you.
Making common errors during the mortgage application process can cause a maze of paperwork and delays. Not only do these errors cost you thousands in interest over its life, but they may even prevent you from being approved for a home loan at all.
1. Do Not Apply for More Than One Credit Card Before Filing Applications for Mortgage Loans
When looking into multiple credit cards, be sure to make sure each is approved prior to applying for your mortgage loan.
A high debt-to-income ratio can make it difficult to qualify for a mortgage. Lenders use your debt-to-income ratio as an important factor when determining how much loan you can afford and what interest rate they offer you. Lowering this number helps you become approved faster for a loan and saves money in interest over its lifecycle.
2. Don’t Deplicate Large Amounts of Cash in Your Bank Account Before Filing for Mortgage Financing
It is essential that you do not deposit large sums of cash into your bank account before applying for your mortgage loan.
When looking to purchase a home, it can be tempting to start moving money around in your financial accounts. Many homeowners do this in order to save for their down payment but it’s wise not to put large sums of cash into your bank account until after being pre-approved by the lender.
Maintain a paper trail for all financial transactions. Switching banks before being pre-approved by your lender can create an abundance of paperwork that takes longer to process, potentially leading to an extended mortgage application.
3. Do Not Open or Close Lines of Credit (Credit Cards, Loans) Right Before Your Mortgage Closing
Throughout the loan process, lenders verify and double-check all of your information. Any modifications to employment or income can restart the underwriting process, so be sure to inform your lender if you change jobs or if your salary has significantly increased.
4. Avoid Utilizing Your Mortgage to Pay Off Other Debt
Revolving a line of credit from your mortgage can cause your credit score to plummet, and if the debt-to-income ratio is too high, getting approved for a mortgage may become impossible altogether. Keeping this ratio below 36% should enable you to qualify and save thousands in interest over its lifespan.
5. Abstain from Living a Double Life
This can be an easy mistake that could negatively affect your mortgage application. For instance, if you’re married and haven’t changed your name yet, make sure to do so before applying. Likewise, if you’ve changed addresses, ensure that all documents such as driver’s licenses and bank statements match.
6. Do Not Alter Your Bank Accounts Prior to Applying for Your Mortgage
Once you have applied for your mortgage, do not alter any bank accounts.
It may be tempting to switch your bank account during the home buying process to one that provides more benefits, such as an online savings account or new credit card. Unfortunately, doing this may cause your lender difficulty sourcing and tracking your assets, leading to delays or even cancellation of your loan before it closes.