Mistakes Made During the Home Loan Process
Buying a home is one of the best experiences of your adult life. However, the mortgage process can be one of the more confusing and frustrating things that you will go through. In a best-case scenario, it can take weeks to gain approval for a home loan and close on the transaction. Things can get even more dicey if you make mistakes during the loan process. What are some of the mistakes made while applying for a loan, and how can you avoid them?
Do You Actually Qualify For a Loan?
The first step in the mortgage process should be applying for pre-approval. This does not guarantee that you will get a loan, but it will give you a good idea as to how much you can expect to qualify for. It will act as a baseline for your budget and help guide you during the house hunting process. Furthermore, pre-approval may be a requirement before you can put an offer on a property that you are interested in purchasing.
You Decide to Spend Before the Deal Closes
The moment that you choose to start applying for a mortgage, the first thing that you need to do is put the credit cards away. If anything, you should be putting as much money as possible into your bank account to allow it to season. In addition, you want to document where the money came from to ensure that you can use it for a down payment or to cover closing costs.
Seasoning refers to how long the money has been in your account, and some lenders may only allow you to use money that has been in the bank for at least 30,60 or 90 days. Making a large purchase either reduces the amount of cash available for closing costs or could impact your credit score negatively.
Applying for a credit card adds an inquiry to your account while putting money on a credit card impacts your utilization ratio and available credit. A small drop in your credit score or overall finances could derail your chances of getting a mortgage even if you already have preliminary approval.
You Don’t Have Proper Documentation
When you apply for a mortgage, your lender will scrutinize everything about your financial situation. Even if others are allowed to give you money for a down payment, you must certify that the money will be used for approved purposes. For instance, if you apply for an FHA loan and use funds from your parents for a down payment, you need to get a letter declaring that they are providing the funds without an expectation of anything in return. Without this documentation, the lender cannot accept the down payment. This could delay the close of the transaction or cause the loan to be declined.
You Change Jobs Prior to Closing
To get a mortgage, you must be able to prove that you have been in your job for at least 90 days. Additionally, you may also have to prove that your employment is not considered probationary or given any other label that could suggest termination is possible in the near future. The only exception that may be made is if you change jobs within your field, and you can prove that you plan on staying in that job for the foreseeable future.
You Don’t Understand the Terms of Your Agreement
You are legally bound to the terms of your mortgage once you sign it. It is up to you to understand whether your can pay off your loan early or what the penalty is for making a late payment. Although your mortgage may be a complicated document, your real estate agent, lender, and attorney can go through it with you before you close on the deal. At closing, make sure that you ask any questions that you may have prior to signing the documents.
At Chris Doering Mortgage, its our goal to make sure that you have a smooth home loan process. We will work with you to make sure that you know what you are getting into and what you can expect before and after you get financing to buy your home.