6 Ways Home Buyers Mess Up Getting a Mortgage

Getting a mortgage is, by general consensus, the most treacherous part of buying a home. Many homebuyers said they found the mortgage experience stressful and complicated. Even lenders agree that it’s often a struggle. If you’re out to buy a home, you have to be vigilant. To clue you into the pitfalls, here are six of the most common ways people mess up getting a mortgage.

Waiting until you can make a 20% down payment

A 20% down payment is the golden number when applying for a conventional home loan, since it enables you to avoid paying private mortgage insurance (PMI), an extra monthly fee of 0.3% to 1.15% of your total loan amount. But with mortgage rates where they are today—in a word, low—waiting for that magic 20% could be a huge mistake, since the more time passes, the higher mortgage rates and home prices may go!

All of which means it may be worth discussing your home-buying prospects with lenders right now. To get a ballpark figure of what you can afford and how your down payment affects your finances, punch your salary and other numbers into a home affordability calculator.

Meeting with only one mortgage lender

According to the Consumer Financial Protection Bureau, about half of U.S. home buyers only meet with one mortgage lender before signing up for a home loan. But these borrowers could be missing out in a big way. Why? Because lenders’ offers and interest rates vary, and even nabbing a slightly lower interest rate can save you big bucks over the long haul.

In fact, a borrower taking out a 30-year fixed rate conventional loan can get rates that vary by more than half a percent So, getting an interest rate of 4.0% instead of 4.5% on a $200,000, 30-year fixed mortgage translates into savings of approximately $60 per month, or $3,500 over the first five years.

So, to make sure you’re getting the best deal possible, meet with at least three mortgage lenders. You’ll want to start your search early (ideally, at least 60 days before you start seriously looking at homes). When you meet with each lender, get what’s called a good-faith estimate, which breaks down the terms of the mortgage, including the interest rate and fees, so that you can make an apples-to-apples comparison between offers.

Getting pre-qualified rather than pre-approved

Mortgage pre-qualification and mortgage pre-approval may sound alike, but they’re completely different. Pre-qualification entails a basic overview of a borrower’s ability to get a loan. You provide a mortgage lender with information—about your income, assets, debts, and credit—but you don’t need to produce any paperwork to back it up. In return, you’ll get a rough estimate of what size loan you can afford, but it’s by no means a guarantee that you’ll actually get approved for the loan when you go to buy a home.

Mortgage pre-approval, meanwhile, is an in-depth process that involves a lender running a credit check and verifying your income and assets. Then an underwriter does a preliminary review of your financial portfolio and, if all goes well, issues a letter of pre-approval—a written commitment for financing up to a certain loan amount.

Bottom line? If you’re serious about buying a house, you need to be pre-approved, since many sellers will accept offers only from pre-approved buyers.

Moving money around

To get pre-approved, you must show you have enough cash in reserves to afford the down payment. (Presenting your mortgage lender with bank statements is the easiest way to do this.) Nonetheless, your loan still needs to go through underwriting while you’re under contract for your loan to be approved. Because the underwriter will check to see that your finances have remained the same, the last thing you want to do is move money around while you’re in the process of buying a house. Shifting large amounts of money out or even into your accounts is a huge red flag. So if you’re in contract for a home, your money should stay put.

Applying for new lines of credit

If you apply for a new credit card or request a credit limit increase a few months before closing, watch out: Credit inquiries ding your credit score by up to five points. So, don’t let the credit inquiries add up.

Applying for multiple lines of credit while you’re buying a house can make your mortgage lender think that you’re desperate for money—a signal that could change your mortgage terms or even get you denied altogether, even if you’ve got a closing date on the books.

Changing jobs

Mortgage lenders like to see at least two years of consistent income history when pre-approving a loan. Consequently, changing jobs while you’re under contract on a property can create a big issue in the eyes of an underwriter.

Your best bet? Try to wait until after you’ve closed on your house to change jobs. If you’re forced to switch before closing, you should alert your loan officer immediately. Depending on the lender, you may simply need to provide a written verification of employment from your new employer that states your job status and income.

Published by AmandaMccarty

I have been in the real estate business in the Southwest Florida market for many successful years and will be here for many more! This longevity and confidence comes from my real estate services to a great many buyers and sellers, and their recommendations to others that result in repeat and referral business that keeps me productive and successful. As a full service Fort Myers real estate professional, I work with buyers, sellers and investors in real estate transactions spanning all of the price ranges and property types. Residential Single Family – My residential single family services connect buyers with sellers every day, and I do it with professionalism and a total dedication to my clients. This property type is the majority of my market transactions, but by far not the only one in which I have expertise. Condominiums – While condominiums are residential, they’re a very different market focus, and I am an expert in evaluating condos and helping buyers and sellers to cope with the special financing and homeowner concerns for this property type. Multi–family – Investors are great clients for me. Multi–family properties are a very unique market. The detailed return on investment and valuation calculations investors need to evaluate properties for rental are second nature to me. Commercial – Whether it’s a shopping mall, a small office building or a restaurant space, I'm your commercial property specialist. Contact me for your commercial property needs in the Fort Myers real estate markets. Vacant Land – Land is a very special property class. It’s relatively easy to show a gourmet cook a wonderful commercial kitchen in a home and see their eyes light up. It’s more of a challenge to help a buyer or seller to realize the potential in a piece of land. I'm the best at it in the Fort Myers real estate markets. Call me at 239-682-5442 or email me to start a discussion of your needs. Or, fill out this quick form and tell me about your property interests and an overview of your needs.

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