Mortgage Process Dos and Don’ts

Whether you’ve found your dream home, you’re just now starting your search, or you’ve only begun to think about one, a mortgage is probably in your future. 

And if you want to make sure that mortgage loan goes through smoothly and as expected? Then you’ll need to be prepared.

Study up on these dos and don’ts of the mortgage process, and make sure you’re on the right path toward homeownership.

Do: Stay current on all your bills.

Your mortgage lender is going to be analyzing all your financial details — especially your credit report. And any late payments or overdue accounts? Those send up a red flag, indicating you may be a little irresponsible with your money and may even be a risk to your lender.

If you want to make sure you put your best foot forward when you apply for your mortgage (and qualify for a lower interest rate), consider setting up autopay and avoid late payments at all costs.

Don’t: Open any new credit cards or apply for other loans.

When you apply for a new credit card or loan, it results in what’s called a “hard” credit inquiry. These show up on your credit report and can ding your score — both of which can hurt your chances with a lender. Your best bet is to steer clear of any new financial products until you’ve closed on your mortgage loan.

Do: Get your paperwork organized early.

You’re going to need a good amount of paperwork when applying for your mortgage loan, and it can honestly take a while to gather up. Unless you want that documentation to delay your closing, it’s best if you pull it all together before you submit your application.

You can usually expect to need your last two pay stubs, tax returns, and W-2s, as well as the last two months of bank statements. You won’t always need all of these documents, but if you want to keep your application moving, it doesn’t hurt to be over-prepared. 

Don’t: Change your job or cash flow.

You want to look low-risk to a lender, and quitting your job, changing jobs, or taking a steep pay cut while applying for your loan? That looks anything but. Consistency is key when you’re applying for a loan, so try to wait until you’ve closed on your mortgage for any big life or career changes.

Do: Settle any overdue accounts or collections (as early as possible, too).

Overdue balances and collections attempts can send your credit score plummeting — and your chances of getting a mortgage loan along with it. Before even thinking about buying a home, settle up on anything you’re late or behind on, and definitely address any collections attempts. The further these derogatory marks are back on your report, the less they should impact your mortgage chances.

Don’t: Close out old credit cards.

Credit history actually plays a big role in your credit score. If you’ve had a card open for a while, it can help your score a lot — especially if it’s completely paid off. So while it can be tempting to shut down a credit card or account you no longer use (there’s less chance you’ll use it, right?), this move can actually hurt your score in the long run.

Do: Keep a check on your spending.

In addition to credit history, credit utilization also makes up a huge chunk of your credit score. And the more of your credit line you use up? The more it hurts your score. When applying for a mortgage loan (or even when it’s just somewhere on your radar), avoid overspending and steer clear of big-ticket purchases — even if those items are for your future home.

Don’t: Make an offer without getting pre-approved for your mortgage first.

Getting pre-approved is a critical first step in the mortgage process. For one, it gives you a good idea of how much loan you’re eligible for, which also informs your home search. It also can give sellers more confidence in your offers — and that’s huge in bidding wars and hot real estate markets.

Do: Talk to your loan officer or another mortgage professional if you’re confused.

You don’t have to go it alone. Don’t be afraid to ask your loan officer or your real estate agent a question if something is tripping you up. The mortgage process is a complicated one, and it’s important you fully understand what you’re getting into when you get started.

Don’t: Take out more of a mortgage than you need.

Finally, don’t stretch yourself too thin. Use a mortgage calculator to gauge what you can comfortably afford given your income, debts, and expected interest rate, and don’t overspend on your home purchase.

And remember: the bigger down payment you make, the lower your monthly mortgage costs will likely be — but don’t drain your savings. Homeownership comes with many unexpected maintenance and upkeep costs, and having a financial safety net in place is critical.

Want more help being successful on your home buying journey? We’re here for you. Get in touch with Embrace Home Loans today.