Getting a mortgage loan is simpler than ever these days, with near record-low interest rates and banks and lenders opening up their pipelines again after recovering from the last real estate crash. But with rising prices, a higher cost of living, and economic changes on the horizon, it’s also more important than ever to “get it right” when applying for a mortgage – including avoiding these 10 common mistakes:
- Not visiting me first for a pre-qualification before starting to look at homes
Of course buying a house is exciting, but a huge mistake buyers make (especially first time buyers) is to get in a Realtor’s car and spend time looking at houses without being prequalified or preapproved for a loan. If you don’t have the mortgage portion of the equation solved first, you might just be wasting everyone’s time – and miss out when you find a home you love because you’re not ready to make an offer.
- Not getting your documents ready and organized
The mortgage approval process runs smoothly and efficiently when a consumer has their documents organized. W2 forms, bank statements, and pay stubs are just some of the needed documents, and not having them organized, thoroughly documented, and accessible can slow down the loan approval – or even disqualify you.
- Making big purchases or big financial changes before the loan is approved
The loan approval process is a delicate waiting game, as the underwriters and bank dot their I’s and cross their T’s and decide whether to approve you or under what conditions. But too often, consumers make changes to their financial picture during that time, raising a red flag with the underwriters. When you’re in the process of buying a home or refinancing, it’s a good idea not to make any major purchases, uncharacteristic deposits, withdraw large amounts of money from your bank account, rack up significant debt, or apply for other loans. Even changes that you may perceive as positive alter your lending profile, so just ask us before you make any changes.
- Not understanding cost v. price of your home
A common mistake for homebuyers and loan shoppers is to think the purchase price is the true cost of their home. In fact, there are several factors that go into the true cost, like the purchase price, the real estate terms, the mortgage interest rate, the fees and closing costs, how fast they pay it off, and property taxes and insurance.
- Not pulling your credit and improving your score ahead of time
Anyone who’s looking to buy a home or refinance within the next year should check his or her credit score. Even if you think your credit is good and you haven’t made any major purchases or changes, identity theft and data breaches are rampant – affecting up to 12% of Americans every year. Additionally, FICO and the credit bureaus make mistakes on up to 30% of all credit reports, which including incorrect, outdated, or duplicate information. All of those things can lower your credit score – and cost you money or hurt your chances of getting a loan.
It’s not enough to just look at a credit score; consumers should actively go over their credit report and identity areas they could improve upon. You can dispute negative items that don’t belong on your credit report via an online dispute, by writing an official letter or enlisting the help of a reputable credit reporting agency like Blue Water Credit to be of service. The process of disputing items and repairing your credit score takes time, so start at least 3-6 months before you are ready to apply for a loan.
- Not getting the right loan for your needs and circumstances
There are plenty of mortgage experts who will advise only to get a fixed rate loan, without even knowing your individual circumstances and goals. It’s true that fixed rate loans are the most responsible and secure loans for the majority of people, and definitely make sense these days since rates are so low. But if a homeowner knows they will be selling or refinancing within a few years, there might be a better loan available. Likewise, we advise our clients to also explore 15-year loans because the rates are fantastic now. Either way, make sure your loan officer understands your needs and presents the best options accordingly.
- Not getting your finances in order, starting with a budget
Did you know that up to two-thirds of Americans don’t even have a simple budget on paper? They don’t know exactly what’s coming in and what’s going out every month so when it comes time to buy a home or refinance their current loan, they’re lost as to what they can realistically afford. The mortgage qualifying process approves people for a certain loan threshold they can afford, but it’s important to know if that number is realistic and sustainable in real life.
- Looking at the interest rate but not APR of your loan
Your interest rate is one important part of the cost of your loan, but doesn’t neglect the Annual Percentage Rate, or APR. APR is a measure of the interest rate and other fees and closing costs, or the true price of the money you’re borrowing from the bank
- Applying for several loans with different lenders at the same time
Of course, we all want to “shop around,” and get the best deal available, especially with a big purchase like a refinance or home loan. But at some point, it’s best to commit to one lending professional and work with him or her exclusively. Do all of your homework, talk to different lenders, and compare their Good Faith Estimates, but when it comes time to get serious, you’ll want mutual trust, commitment, and communication with only one mortgage professional.
- Stalling and waiting (when you should act!)
There’s a common term in business – paralysis by analysis. It’s great to do your research, collect all of the information you need, and ask lots of questions, but fear keeps a lot of people from jumping on a fantastic deal. Whether taking advantage of low interest rates or making an offer on that underpriced deal or dream home, those who act are rewarded – and those who wait usually lose out.
***
Of course, you can contact me anytime with questions about the best way to avoid these mistakes when getting a mortgage!