Top Do’s and Don’ts When Applying for a Mortgage
Obtaining a mortgage can be a tedious and seemingly endless process. Many of the problems that people encounter come from not following some basic do’s and don’ts. Aligning yourself with a qualified loan officer that can walk your through the process and be there for your questions is very important. Many banks or large call centers don’t give you the option to have questions answered in the evening or on weekends when you often need an answer. Be sure that you select someone that can be there when you need them.
Below are some simple notes to keep in mind as you prepare for the mortgage process. Each situation is different but these are generally universal enough that they apply to most people.
Credit – Now is not the time to be opening or closing credit accounts without checking with your mortgage loan officer first. Doing either of those actions can actually lower your credit scores. It can also cause delays if the new account is not appearing on the credit report by the time you apply for the loan. You’ll want to avoid opening new accounts or even inquiring into your credit during the processing of your home loan. Sometimes even opening a law-a-way account can show up on your credit report. Some types of mortgages require that the lender re-pull the credit report just before closing and a new account can jeopardize your approval.
Employment – Lenders love consistency and stability. If you have an opportunity to start on a new job shortly before you apply for the new loan you should contact your loan officer to see if it impacts your loan. Getting a new job in your same field or as a promotion typically is not a problem. However, entering a new field or going to a commission/tips income can affect your qualifying. Completing a degree and taking on a job in your field of study is normally fine but you should still check with your loan officer.
Assets – Most loans require the lender to review the banking activity of the borrower over the past two months. The lender is looking for large unexplained or unusual deposits. The definition of “large” is somewhat related to the income of the borrower or the size of the loan requested. If you can avoid making large deposits at least two months prior to applying for the loan you can save yourself a lot of paperwork. If the money has a legitimate source such as a gift or sale of an asset and you can adequately document the money, you may be fine. As always, a phone call to your loan officer can resolve an issue before it even comes up.
Practice – A very simple “trick” that I recommend to my customers is to practice what you are planning on getting yourself into before you get there. For example, if you are planning on buying a home with a projected payment of $1600 and you are currently paying rent of $900, then you should be putting at least $700 into savings each month right now. (1600-900=700) This is a bare minimum as this doesn’t account for the added costs of owning and maintaining a home as opposed to renting. However, it will let you know if your plans and dreams are in line with your actual abilities.
Start Early – It’s not too early to meet with a loan officer. The additional time will allow you to better prepare yourself and your finances for the upcoming purchase. I’ve met with people up to a year before they purchase their home and I’ve not been the least bit bothered by that timeline. A qualified loan officer will be happy to help you with the preparation.