Avoid These Common Mistakes When Applying for a Mortgage

When you are getting ready to buy a house, it is exciting to think about moving in and making it your own. But, before you go too far down the emotional road, there are some important things to remember after you apply for your mortgage and before you close. Here's a checklist of things to keep in mind when applying for a home loan.

Don’t Deposit Large Sums of Cash

Lenders must source your funds, and cash is difficult to track. Before you deposit any funds into your accounts, consult with your loan officer about the best way to document your transactions.

Don’t Make Any Large Purchases

It is not just home-related purchases that can cause you to lose your loan. Lenders may be wary of large purchases. People with new debt have higher debt-to-income ratios (the amount of debt in relation to monthly income). Because higher ratios result in riskier loans, borrowers may no longer be able to obtain a mortgage. Resist the urge to make large purchases, even if they are for furniture or appliances.

Don’t Cosign Loans for Anyone

When you cosign for a loan, you hold yourself responsible for its success and repayment. Higher debt-to-income ratios accompany that obligation. Even if you promise not to make the payments, your lender will be forced to count them against you.

Don’t Switch Bank Accounts

Lenders must source and track your assets. When your accounts are consistent, this task becomes much easier. Speak with your loan officer first.

Don’t Apply for New Credit

It makes no difference whether it is a new credit card or a new car. Your FICO® score will be affected when your credit report is run by organizations across multiple financial channels (mortgage, credit card, auto, etc.). Lower credit scores can affect your interest rate and possibly even your approval.

Don’t Close Any Accounts

Many buyers believe that having less credit available makes them less risky and thus more likely to be approved. This is not correct. Your length and depth of credit history (rather than just your payment history) and total credit usage as a percentage of available credit are important factors in your score. Closing accounts lowers both of those components of your score.

Do Discuss Changes with Your Lender

When speaking with your lender, be upfront about any changes that have occurred or are expected to occur. Changes in income, assets, or credit should be reviewed and implemented in such a way that your home loan can still be approved. If your job or employment status has recently changed, notify your lender. Finally, before you do anything financial, it is best to fully disclose and discuss your intentions with your loan officer.

Bottom Line

You want everything to go as smoothly as possible with your home purchase. Remember to consult your lender before making any large purchases, moving your money, or making major life changes - someone who is qualified to explain how your financial decisions may impact your home loan.

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