Avoiding These Issues Are Critical When Buying a Home
Applying for a mortgage from a lender is necessary for many homebuyers. It can be problematic in the buying process, but there are things to avoid doing when getting a mortgage that could otherwise cause you problems.
Understanding how to go about getting a mortgage is essential. Many things can go wrong if you are not careful. Working with reputable professionals will go a long way toward successful real estate transactions.
We will look at homebuyer mistakes, so you can avoid these things when getting a loan.
Increasing Your Debt
Part of the lender’s calculation is your debt-to-income ratio. Your income compared to your debts shows the lender how much you can afford. If you take on more debt, you will reduce the loan amount you qualify for.
You will be seen as high-risk if you have a high debt-to-income ratio. If your debt-to-income is above 43%, you might find it very difficult to be approved for a mortgage.
Even if you can get approved, you’ll find the mortgage terms won’t be the best.
Not Checking Your Credit
If you don’t know your credit score, you should find out before considering applying for a mortgage. Your lender will use your score as part of their criteria when assessing your application.
If your credit score isn’t as high as you’d like, you can take steps to improve it. Borrowers who have excellent credit scores are rewarded with better loan terms.
Since you’ll likely have a mortgage for many years, it makes sense to work toward better scores. Trying to buy a house with a lower credit score will result in less favorable terms.
A large part of your credit score is influenced by how good you are at paying your bills. If you miss a bill payment date, it could hurt your credit score and loan application.
If you have missed payments in the past, the lender will assume that it will happen again, and they don’t want that from a borrower.
Make sure you keep your payments on time.
If you max out your credit cards or regularly use a large proportion of your available credit, it could hurt your score.
If you are using more than 30% of your maximum available credit, it could be lowering your credit score. Reduce your credit usage before applying for a mortgage.
It is an excellent idea to cut out frivolous spending when buying a home. Put your credit cards away if you have to.
Though you might imagine consolidating debts into fewer accounts is better, it will reduce your available credit and the average age of your accounts. Both things can negatively affect your credit score and should be avoided before buying a home.
Your application could be rejected if you buy something expensive before your mortgage is approved. There are down payments and closing costs to pay when buying a home, and spending your money on a large purchase could mean you don’t have enough to cover these costs.
If you take out a loan or increase your credit card debt to fund the purchase, your debt-to-income ratio will change. This will mean you have more bills and less of your income available to pay the mortgage.
Many potential home buyers have made the mistake of purchasing a car during the middle of their transaction. Not good!
If you are going to change jobs or careers, doing it right before you buy a home isn’t the best time. Lenders like to see a stable income; if you have just changed jobs, it might be harder to prove your income.
You might not have a pay stub to show the lender so that they know you will be able to pay the mortgage.
Marrying Bad Credit
While you probably won’t consider your fiance’s credit score before you marry, your lender will undoubtedly be if you buy a home with them.
Your lender will check both financial histories, and if your partner has bad credit, it could affect your chances of getting the home loan you want.
You may find that your spouse can’t be put on the mortgage.
It is common for first-time buyers to get help with down payments from family members, but some rules must be followed if this happens.
Any large deposits into your account before applying for a mortgage could be an issue. These sorts of deposits need to be documented, and it is better if it happens months before you apply.
Mortgage lenders today are vigilant about documenting money flow in and out of accounts. There are many easily avoidable mistakes when buying a home.
If you have co-signed on a loan to help someone out, it could become a problem when applying for a mortgage.
While you might have co-signed to help a child or other family member, you are partly responsible for that debt. If they also miss payments or even default on the loan, their credit score will take a hit.
When you need to apply to a lender to help you buy a home, you must be more careful with your finances to get approval.
During the underwriting process, your financial history will be checked, so you must do the right things and avoid mistakes that could mean higher costs or rejection.
About the author: The above article on “What to Avoid When Getting a Mortgage” was written by Bill Gassett. Bill has been working in the real estate industry for the past thirty-seven years. He works for RE/MAX Executive Realty in Hopkinton Massachusetts. Bill loves providing trustworthy information to buyers, sellers, and fellow real estate agents to make the best possible decisions. His writing has been featured on RIS Media, National Association of Realtors, Inman News, Placester, Today.com, Credit Sesame, and others.
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