The Top 6 Mortgage Mistakes Buyers Should Avoid When Applying for a Home Loan
Applying for a mortgage can seem like a daunting process. In light of that, we’ve taken the liberty of laying out six mortgage mistakes that buyers sometimes make when applying for a home loan. Study up on these mistakes so that you don’t make the same ones. At the end of the day, it could make all the difference between being approved for a loan and having to wait to buy your dream home.
Here are the top 6 mortgage mistakes buyers should avoid
1. Not working on your credit first.
When you’re applying for a loan, your credit score plays a big role in the process. On the one hand, it could determine whether or not you get pre-approved in the first place. However, on the other, it will also determine your interest rate. Those with higher credit scores are often offered the lowest rates.
With that being said, if your credit needs some work, take the time to fix it before you apply for a loan. Put some extra effort into paying down your debts and be sure to make all of your payments on time.
2. Getting pre-qualified instead of pre-approved.
Although the terms “pre-approval” and “pre-qualification” may sound similar, in practice, they could not be more different. Put simply, a pre-qualification works off of your own financial estimates whereas a pre-approval requires that a lender actually looks over your financial documents. Unsurprisingly, a pre-approval is considered more valuable and is the document that is often required when you submit an offer on a home.
It’s important to mention that since getting a pre-approval takes more work, it often takes more time as well. You’re going to want to have this document in hand when you’re ready to start shopping for homes.
3. Not shopping around for the best rate.
Not all lenders and mortgages are the same. That’s why, when you’re in the market for a home loan, it’s important to shop around. A 2018 study by Freddie Mac found that borrowers saved an average of $1,500 when they got an additional rate quote and an average of $3,000 when they got five quotes.
To that end, it’s a good idea to get quotes from at least three lenders when you’re ready to start the process of applying for a home loan. Make sure to give each lender the same information so that you can feel confident that you’re making an apples-to-apples comparison.
4. Thinking the interest rate is all that matters.
Next, when you’re looking at your rate quote, don’t just look at the interest rate. While the interest rate will play an important role in determining how much will pay over the life of the loan, it is not the only thing that matters. In particular, you will also want to look at any fees charged by the lender. It also makes sense to look at the estimated tax and insurance payments, as well as the estimated cash to close.
5. Not responding to your loan officer in a timely fashion.
Once you’ve chosen your lender, the next step will be to submit your financial documents. After all your documents have been submitted, your loan application can go to an underwriter for final approval. However, at any point during this process, your loan officer may have questions. In that case, it’s in your best interest to respond to them quickly.
Usually, closing on a loan takes a substantial amount of time. It’s more than likely that your lending team is against the clock trying to get your loan application approved. If they can’t do that, closing on your home may be delayed — so you are going to want to do everything you can to help them move the process along.
6. Making a big purchase before you close on your loan.
Lastly, it’s a good idea to avoid making any major purchases before you close on your loan. This can include things like buying new furniture or financing a remodeling project. Unfortunately, big changes to your finances before your loan application is approved can be red flags for the underwriter. If your financial circumstances change drastically, you may not be able to be approved for your loan.
With that in mind, it’s best to wait to make any big purchases until after you’ve sat down at the closing table.
The bottom line on these mortgage mistakes
In truth, very few mortgage mistakes are irreversible. If you do make a mistake when applying for your home loan, the worst that can happen is that you just need to wait a bit before buying. While that would be disappointing, it is not the end of the world. Plus, there are many lenders out there who can help you get your finances into home-buying shape. Reach out to one of us today.