If your dream is to own a home of your own, you already know that your credit score is critical and that you should maintain as high a credit rating as possible. However, you might not know precisely how to obtain and maintain good credit. While some factors that can sink your credit score are obvious, others may surprise you.
Obtaining mortgage pre-approval can give you a boost in obtaining the home you want. Prequalification can also be helpful, but pre-approval is preferable. The pre-approval process is more rigorous than the process for prequalification, and produces an actual commitment from a lender, under certain conditions. Prequalification does not.
Along with prequalification and pre-approval, it is important to avoid the following basic mistakes in seeking a mortgage. While you may be able to obtain a mortgage if you have one or two of these strikes against you, the interest rate for your mortgage will be significantly higher than the mortgage rate you could obtain with a clean record. If you carry too many strikes against you or even one or two of the wrong strikes, you could be out of the running for any mortgage for years to come.
- It should go without saying that bankruptcy and foreclosure are absolute mortgage approval killers. Avoid both if at all possible. If you have either a bankruptcy or foreclosure on your credit report, you may have to wait years before you can obtain approval for a mortgage.
- Avoid late mortgage payments, which can also kill your application even if your credit is otherwise up to par. If you have a legitimate reason for missing mortgage payments and can document that the problem is in the past, you may be able to overcome this hurdle.
- If you list a property for sale, don’t attempt to refinance it. Lenders will take a dim view of this action, and will probably disqualify you for a mortgage.
- Get rid of erroneous charge-offs and collections, and resolve legitimate adverse items. Both items will sink your credit score like a rock.
- Avoid credit counseling, at least immediately before you go mortgage shopping. Lenders are skittish about lending large sums to potential borrowers who have trouble paying their bills.
- Don’t rack up a slew of new credit cards or max out the cards you already have. Put off buying big-ticket items unless you can afford to pay cash. Too much debt can kill your mortgage application.
- Unless you’re a new grad with a great job offer in hand, don’t try to get a mortgage until you can establish no less than two years of steady employment with consistent income.
- Don’t try to get a mortgage unless you can show a good housing history for at least the past twelve months.
- Avoid attempting to apply for a mortgage unless you can document sufficient liquid assets to cover the entire mortgage note, including taxes and insurance.
- Don’t attempt to obtain a mortgage without at least three favorable credit tradelines, with at least a two-year history for each tradeline.
More Deadly Home Loan Mistakes that You Might be
The mortgage regulations keep changing regularly and thus as a borrower you should be careful while applying for a home loan. If you are not careful, you may commit a mistake that can get your home loan denied. It may also result in the selection of an inappropriate home loan that results in a waste of money. This post provides detailed information about the 5 deadly home loan mistakes that people generally make.
Not doing proper research
The most common mistake that people do while taking a home loan is that they do not do any research about the different options available. Some people just pick up the plan suggested by the lender or friends while others go for the traditional 30 years fixed rate home loan option.
This is a wrong approach and as a borrower, it is your responsibility to check out the best plans as per your financial condition, repaying abilities, and overall requirement. If you make a plan on the recommendation of your lender, there is always a risk of getting fooled. This is because the lender is a salesperson and not an advisor.
Not selecting the appropriate loan
Once you have properly researched the best plans as per your needs, the next step is to select the best one from this list. Several factors should be considered while selecting a particular option. It depends on the loan amount and repaying capability of the borrower. In case, you wish to go onto a bigger house after some years, you should go for the adjustable mortgages.
On the other hand, if you are thinking to live in the house for a few years, you should go for the fixed-rate option. An important thing to remember here is that the fixed-rate home loans generally charge a higher interest rate in comparison to the home loans with adjustable rates.
Not considering your repaying abilities
Another deadly mistake done by people while taking a home loan is that they take a big loan amount. This results in a situation where they are not able to repay the installments in the future resulting in financial problems.
At that time, you might have to postpone the necessary expenditures to make up for the installments. This situation occurs mainly because people get influenced by the lenders and take the loan amount as per their suggestion. Such people are anxious to take a home loan and the lenders exploit this situation.
Not investigating the lender
Some of the borrowers just focus on the different loan options and thus do not pay any attention to the reputation and history of the lender. To get a better range of home loans, you should prefer an experienced lender. This is because an experienced lender is well informed about the different plans.
Hiding information from a mortgage broker
Finally, most people do this mistake where they try to hide their past financial conditions from the mortgages broker. This can be fatal and is one of the most common causes behind the denial of a home loan application.