Three Mistakes to Avoid when Applying for a Mortgage
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Buying a home on a mortgage is not a small decision. It can
take a lot of time to get one. Getting all the paperwork done, while following
all the rules and regulations, can be complex for some. Since it a very
important decision (at least on a financial level), it only makes sense to jump
into it carefully. 3 Mistakes To Avoid when applying for your Mortgage:
1. Forgetting to Check your Credit:
Before your start looking for a company or a bank that will give you a home loan, you should take a look at your credit score. Do you know that a credit score on the worst side can get the interest rate (percentage) on your mortgage to rise by several points? Or worst case scenario, your application may even end up getting rejected. Make sure that you know your credit score early (preferably several months earlier) so that if you make any changes to get make it attractive again, you can do so.Don't apply for other credit before the application process is complete: On a similar vein, make sure that you don't apply for other kinds of credit till the application process for the mortgage is complete. If you apply for any other kind of credit, like an auto loan or a new credit card while you are seeking a mortgage, there is a chance that you will be seen as a high credit risk. This could prevent you from getting the mortgage or even lead to an increase in the interest rate if you do.
Note that a mortgage is a chance to verify personal details that you may have forgotten. Don't remember your credit score? Pull one out. If you've forgotten details of your past employment or if you don't know your exact debt, go into your filed records and dig out the answers. This will not only save you work later but will also acquaint you with your personal finances.
2. Not Getting a Pre-Approval:
Good mortgages come with good preparation. Before you start house hunting, make sure that you are actually qualifying for the mortgage loan. You can do this by getting pre-approved. Mortgage pre-approvals are more robust compared to pre-qualification checks because the lender or the bank will first pull your credit score and look at your assets, income, and employment.
In a pre-qualification check, the lender will only make an estimate of the mortgage that you are eligible to take. In pre-approvals, you will be given a go ahead based on your earlier finances. What loan amount you will be able to afford will not be based on estimates but hard numbers.
The DTI ratio (debt-to-income) will also matter when you want to know what mortgage payment you will be able to exactly afford. When you get pre-approved for the loan, you can ask for a written commitment that the lender will finance your mortgage. This will show your home seller that you are serious about purchasing the house.
Don't chase loan programs that are exotic: You should certainly look around for the best terms, low closing costs, and better rates, but don't do it just by getting lured by exotic loans. If you hear something that sounds too good, then it likely is. Sometimes the monthly payment is too low. Here you might be paying only the interest. It is even possible that your mortgage negatively amortizes (your balance in the mortgage grows every month). It is in your best interest to keep the mortgage simple. Take a mortgage that you can easily understand, like fixed rate mortgages.
3. Changing Your Job:
To get a mortgage approval, another key criterion is steady income and employment. The underwriter, who works on your application, will be interested to know you are holding a steady job and that you get a consistent income every month which will continue in the future (at least the foreseeable). Avoid job-hopping before you apply for the mortgage. If you are making a job change, it shouldn't be a problem but a change in career can cause problems. If you are considering jumping ship, wait till the mortgage has been closed first.
Read the loan documents carefully: Finally, before you sign on the dotted line, you are responsible for reading and accepting the terms on your mortgage. It can be irritating when you have to read all those documents before you sign them, but don't forget that it will be more painful when you realize that you signed up for a clause that you don't want or you don't agree with. Before you sign, you should set aside some time to understand all that is written on the documents and only then agree to it. Don't forget that you can ask questions, it is your right! Otherwise, you will end up paying for a loan where the terms are predatory or which you are unable to pay off.
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