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You’ve found the home of your dreams and the excitement is palpable. However, it’s essential to keep a level head and avoid financial mistakes when applying for a mortgage to ensure a smooth loan approval process. Our expert tips cover the 5 common financial mistakes to avoid when applying for a mortgage, so you can keep your mortgage dreams alive and secure your dream home without any hiccups.
One of the most important factors in getting approved for a mortgage loan is demonstrating stable employment. Lenders want to see that you have a steady source of income and are able to make your monthly mortgage payments on time. Therefore, it’s crucial that you don’t change jobs during the mortgage application process.
Even if you’re offered a better-paying job, hold off until after you close on your house. If you do decide to switch jobs, it can put your loan approval at risk. This is because lenders will have to re-evaluate your financial situation and may question whether you will be able to make your mortgage payments on time. This can cause delays in the approval process, or even worse, result in your loan application being denied.
If you do have to change jobs during the mortgage application process, make sure to discuss it with your lender and provide any necessary documentation. For example, if you’re moving to a new job in the same field or industry, this may be seen as a positive change and could improve your chances of getting approved for a mortgage. However, it’s important to keep in mind that each lender has their own guidelines and requirements, so it’s always best to consult with your loan officer before making any major changes to your employment situation.
Opening new credit accounts is a common mistake that many people make when they’re in the process of applying for a mortgage. Even if you’re tempted by a great deal on a credit card or financing for new furniture, it’s important to resist the urge to open new accounts until after your loan has closed. When you apply for new credit, it triggers a hard inquiry on your credit report, which can negatively impact your credit score. Additionally, having too many credit accounts open can make lenders nervous because it increases your debt-to-income ratio. This ratio is an important factor that lenders use to determine your ability to repay your mortgage. Opening new accounts during the mortgage application process can put your loan approval at risk. So, if you want to keep your mortgage dreams alive, hold off on opening any new credit accounts until after your loan has closed.
According to a 2020 study by the National Association of Realtors, the most common reason for mortgage loan application denial is due to a high debt-to-income ration.
One of the biggest mistakes home buyers make is making large purchases during the mortgage application process. Lenders want to see that you have a stable income and are not going to become overwhelmed by debt. If you go out and purchase a new car or furniture for your new home, it can increase your debt-to-income ratio and impact your credit score, putting your mortgage loan approval at risk.
Additionally, even if you have the cash on hand to make the purchase, making a large purchase can be a red flag for lenders. They may view it as a sign that you may not be able to manage your finances responsibly and are more likely to default on your loan. To avoid any unnecessary complications or delays in your mortgage approval process, it’s best to wait until after your loan has closed to make any large purchases.
In a 2021 survey by Bankrate, 32% of homebuyers admitted to making a major purchase during the mortgage process, which can negatively impact the loan approval
When you are in the process of applying for a mortgage, it’s important to make sure that all your existing accounts are up-to-date and paid on time. Late payments can seriously damage your credit score, which is one of the most important factors in getting approved for a mortgage loan. Not only can it negatively impact your credit score, but it can also make lenders nervous about your ability to pay back your debts. Be sure to prioritize your existing accounts and make your payments on time to avoid any issues during the mortgage application process.
When it comes to purchasing a home, it’s natural to want to put down as much money as possible for your down payment. However, it’s important to remember that using up all of your savings for your down payment can leave you vulnerable to unexpected expenses that may arise after you close on your house. These expenses could include unexpected repairs, appliance replacements, or even a job loss. It’s wise to have some savings set aside for emergencies, so that you can be prepared for whatever may come your way. Experts recommend having at least three to six months’ worth of living expenses set aside in an emergency fund. By keeping some savings on hand, you can ensure that you’re able to weather any financial storms that come your way, without putting your home or mortgage in jeopardy.
Remember, the time between going under contract on a house and closing on your loan is a critical time for your financial stability. Be mindful of your spending and avoid making any financial moves that could jeopardize your mortgage approval. Stay on track and your mortgage dreams will soon become a reality!
The Zahn Group serves buyers and sellers in the Charlotte NC Metro Area and Upstate South Carolina. For more information about buying or selling a home with us contact us.