Qualifying for a mortgage is a big process. A lot of information is gathered and a lot of it relies on everything staying the same during the qualifying time. Many people don’t know that a simple thing like purchasing a new car can wreck a whole mortgage qualification! But, sadly, it can and I’ve seen it happen a time or two.
I wanted to write this blog post to help you understand what you shouldn’t do when qualifying for a mortgage. As a borrower, you need to be aware of things that can damage your credit, in order to hold onto qualifying for your mortgage.
Here are five things you should avoid doing when trying to buy a home.
Let’s start with the one I just mentioned. Buying a new car with a loan is a no-go during this process. Whether it’s an auto, personal or student loan, they all have one thing in common. They increase your total debt load. This affects the chance of being approved for a mortgage.
When applying for a mortgage loan, lenders consider the amount of debt you already have with your gross monthly income. This is known as your debt-to-income ratio. The last thing you want to do when you’re in the process of qualifying with a lender is to increase your debt-to-income ratio.
So, try to avoid taking out any other loans or credit lines during this process. Save the new car until after you’ve taken possession of your new home.
This one seems pretty obvious, but we can’t miss it. We just discussed the debt-to-income ratio, which certainly includes credit cards. Carrying too much credit card debt can be one of the reasons for a mortgage rejection or a lower approval due to a higher debt to income level. Lenders can see you as more of a risk, which can also damage your credit score.
Generally, I suggest limiting excessive credit card use before applying for a mortgage loan. If you do use your credit card, it’s important to pay it off or as get it as low as you’re able to every month.
Moving along, the third thing you shouldn’t do is miss payments. Whether it’s a credit card payment, car payment, current mortgage payment, phone payment or any other monthly bill, do not miss any payments.
When you miss a payment, it affects your credit score. Lenders use your credit score to assess your risk when qualifying for a mortgage and being able to make your payments.
A higher score = less risk
A lower score = more risk
When it comes to your credit score, your payment history accounts for approximately 35% of your overall score. If you miss payments, this is going to highly affect your score, which in turn can affect your chances of getting a mortgage.
So, ensure that your monthly bills and payments are made on time every month. Whether you pay them manually every month or set up an auto-payment schedule, this is one of the most important tips and things you need to do when hoping to qualify for a mortgage.
Lenders like to see a history of steady employment and income. Ideally, they like to see a history of two years, but many are ok with as little as 3 months or being off of probation. Employment is a key qualification item for the majority of people during the mortgage qualification process.
If you’re changing jobs in the same field, with the same or greater income and aren’t on probation, this may not be a big concern for the lender. But, when people change jobs, are on probation and especially if it’s a new industry, the lender sees this as more of a red flag. Lenders want security when they decide to lend to you, and a job switch during the middle of the process isn’t security. Switching a job (and being on probation) can easily kill a deal.
The same thing goes for taking a leave of absence from work or being laid off. I understand with being laid off, most times we have no control over such things. But, if you do have the control and have a say, postpone your career change until after you’ve received funding.
You cannot spend all of your savings before or during the mortgage process. You’re going to encounter certain out-of-pocket expenses when getting a mortgage for a home. First, you need to consider your down payment. You will have to make a down payment for your home of some kind.
You’re also going to encounter closing costs, lawyer fees, inspection fees and more. These can amount to higher dollar amounts than you may have considered. Ensuring that you have savings set aside for these costs is crucial.
Additionally, some lenders do like to see additional cash reserves in your accounts, especially if you’re a higher risk borrower.
Staying clear of these five things when qualifying for a mortgage will give you a better chance of being approved. To get started on your approval process today, reach out to me! You can pre-approve yourself on my website and then I’ll be in touch with you to start the whole process. If you have any more questions about things you shouldn’t do when qualifying, please let me know. I’m happy to help out any way I can!
Let’s get your application off the ground.
