If you’ve ever purchased a home before, or at least researched the process, you know how long and difficult of a process it can actually be. There are multiple inspections, mountains of paperwork, and a rigorous mortgage application process to get through before you get the keys in your hand. However, given the convoluted nature of the home buying process, purchasers often forget to be on the lookout for more simple mistakes that can be just as devastating. Below are five such missteps to avoid.
1 – Newly Acquired Credit Card Debt
You may think that after your lender checks your credit at the beginning of the mortgage approval process, you’re out of the woods and free to start using your credit cards again. However, this may not be the case. Your lender may conduct more than one investigation of your credit score in order to confirm a consistently acceptable debt-to-income ratio. Therefore, you should avoid making any changes to your credit until after closing. This includes closing out any of your accounts in addition to acquiring new credit card debt.
2 – Negative Changes to Your Credit Report
Related to the first tip, you should avoid causing any negative updates to your credit report while your mortgage approval is pending. As mentioned above, your lender may check your credit more than once, so having a squeaky clean credit history at the beginning of the process won’t do you any good if you’ve missed a bunch of payments and tarnished your credit score by the end.
In addition to avoiding any behavior that might negatively impact your credit score, you should be sure to check it yourself to ensure that there are no mistakes on your report. This happens more often than you’d think, and credit bureaus are required by law to correct any errors. If they refuse to do so, you will need to obtain the representation of a premier law firm like Adam Leitman Bailey, P.C. to help you get the error corrected.
3 – Cosigning Someone Else’s Loan
It’s certainly noble to help out friends and family by cosigning on a loan for them when they are having trouble receiving financing on their own, but be aware of how becoming a guarantor for someone else can affect your own mortgage application.
The main factor guiding a lender’s decision of whether to grant you a home loan is your debt-to-income ratio. This ratio indicates the likelihood that you will make your monthly loan payments on time, by showing how much money you will have left every month after making all other debt payments. What you may not realize, is that cosigning someone else’s loan can actually have a negative impact on your debt-to-income ratio, due to the possibility of you needing to make the payments on the loan you cosigned if the primary borrower defaults. This downgrade of your debt-to-income ratio could kill your loan.
4 – Getting a New Job
A great new job couldn’t possibly be bad news for a mortgage application, right? Wrong. When a lender verifies your employment, they’re looking evidence of stable income of sufficient amount to enable you to make regular payments for the life of the loan. This stability is not present if get a new job just weeks prior to the lender’s employment verification. You may not like the job, or employer may not like you – everything is too new and untested. Now the lender may worry that you’ll be unemployed in the near future and start missing payments, and they won’t approve your loan application.
5 – Bank Deposits
As with getting a new job, many borrowers may assume that making a large deposit of cash into their bank account can only strengthen their chances of being approved for a mortgage. This is not necessarily the case. Any deposits must be properly and meticulously documented, or else they may become red flags to a lender. Proper documentation will require the completion of specific forms provided by the lender.
Applying for a mortgage is a grueling and stressful process. Don’t make it any harder on yourself by making small, easily avoidable mistakes. A little extra attention to detail during the process can spare your from enormous headaches.