Navigating the mortgage application process can be complex. However, understanding common pitfalls can help you avoid them and increase your chances of approval. This guide provides a step-by-step overview of the top mistakes to avoid when applying for a mortgage.
- Not Checking Your Credit Score
Your credit score plays a significant role in your mortgage approval. Lenders look at your credit score to determine your creditworthiness. Neglecting to check your score before applying can lead to surprises that could delay or hinder your application. Regularly review your credit report and take steps to improve your score if necessary.
- Not Getting Pre-Approved
Getting pre-approved gives you an idea of how much you can borrow and what interest rates you might qualify for. It also shows sellers that you’re serious about buying. Skipping this step can lead to wasted time looking at homes you can’t afford and disappointment if your actual approval is less than expected.
- Not Saving Enough for a Down Payment
The more money you can put down, the less you’ll need to borrow, and the more attractive you’ll be to lenders. Not saving enough for a down payment can affect your mortgage rates, loan options, and may even require you to pay for mortgage insurance.
- Forgetting about Closing Costs
Closing costs, which can include legal fees, land transfer taxes, and home inspections, typically range from 1.5-4% of the purchase price. Forgetting to budget for these costs can lead to last-minute financial stress.
- Applying for New Credit Before Closing
When you apply for new credit, lenders make a hard inquiry into your credit report, which can temporarily lower your credit score. This could change your mortgage approval or interest rate, especially if you’re approved for new credit or take on new debt.
- Changing Jobs
Stable employment and income are critical factors lenders consider. If you change jobs during the application process, lenders may see you as a higher risk, which could impact your approval.
- Not Shopping Around
Different lenders offer different rates and terms. By not shopping around, you might miss out on a better deal. A mortgage broker like Shelto can help you compare various mortgage options and find the best fit.
- Not Understanding the Terms of Your Mortgage
Make sure you fully understand all the terms of your mortgage, including whether your rate is fixed or variable, the term, the amortization period, and any penalties for prepayment.
- Lying on Your Application
Always be truthful on your mortgage application. Lying about your income, debts, or down payment can lead to denial of your application, legal problems, and a damaged credit score.
- Not Preparing Proper Documentation
Lenders require several documents to process your mortgage application, including proof of income, bank statements, and identification. Not preparing these documents can delay your application.
- Making Big Purchases Before Closing
Making large purchases or taking on new debt before closing can alter your debt-to-income ratio and affect your mortgage approval. It’s best to avoid making big purchases until after you’ve secured your mortgage.
- Not Considering Long-Term Affordability
It’s essential to consider whether you’ll be able to afford your mortgage in the long term. Factor in potential changes like interest rate hikes, job changes, or starting a family.
- Not Working with a Mortgage Broker
Working with a mortgage broker like Shelto can help you avoid these mistakes. Brokers understand the mortgage process, can compare offers from different lenders, and can provide advice tailored to your situation.
In conclusion, while applying for a mortgage can be complicated, avoiding these common mistakes can simplify the process and increase your chances of approval. As always, Shelto is here to assist and guide you through the mortgage application process, ensuring you make informed and beneficial decisions.