How to Properly Apply for a Home Loan
There are many things you should do to help your chances of getting approved for a home loan, but there are just as many things you shouldn’t do. Even borrowers with good credit and substantial income can get denied if they make poor choices before or during the application process. Some actions may not result in a denial, but can potentially delay your closing or increase your interest rate. For best results, follow these six rules from Cliffco Mortgage Bankers when buying a new home or refinancing your current home.
1. Don’t change jobs.
As of 2014, lenders are required to verify your income as well as its source in order to confirm that you have the ability to repay your mortgage loan. Consistency in employment and income is important to lenders, as it indicates that you will not be a high-risk borrower. While it is not always possible to avoid changing jobs during the loan process, doing so will most likely delay your closing – running you the risk of losing your interest rate if the lock-in expires – as your lender will have to contact your new employer for updated information.
2. Don’t make large purchases.
As soon as you are aware that you will be applying for a mortgage, it’s best to avoid buying any big-ticket items. That’s because lenders run credit checks on all potential borrowers at the start of the application process, and possibly again before closing. Your credit report is carefully analyzed to ensure that you meet the applicable loan-to-value (LTV) and debt-to-income (DTI) ratios and that you have access the necessary down payment monies.
3. Don’t open new credit accounts or close existing ones.
As a follow-up to rule #2, you should avoid opening new credit accounts during the application process – even for what you may deem to be small purchases. But did you also know that you shouldn’t close any existing credit accounts? That’s because opening – and even closing – credit lines have a negative impact on your credit rating. Opening new accounts will deteriorate your debt-to-income ratio. And since lenders like to see that borrowers have available credit that they aren’t using, closing accounts can also reflect poorly on you and result in a higher mortgage interest rate.
4. Don’t miss debt payments.
This rule is simple. Be sure to make all of your mortgage payments, credit card payments, car payments, etc. in full and on time both before and during the loan application process. Being late with a payment or, worse yet, not paying one at all, will damage your credit rating and may result in a higher interest rate or rejection of your application. Moreover, thoroughly review your credit report to ensure that it doesn’t contain any inconsistencies. If you have never missed or been late with a payment, yet your report lists delinquencies, you will have to provide the lender with proof that the blemish is incorrect.
5. Don’t make large deposits.
Most borrowers find this rule confusing, as depositing large sums of money into their account is usually viewed as a good thing. However, when lenders see large deposits, it signals that the money is coming from a friend or relative who may want to be paid back, which could affect the borrower’s ability to make their monthly mortgage payments. If you do plan on using gift money toward your down payment, you must alert your lender to this at the start of the application process, and you must cooperate with any requirements to provide “gift letters” from your beneficiaries indicating that the money will not have to be repaid.
6. Don’t fail to report debt.
It is very important that you fully disclose all debt to your lender at the outset of the application process. After all, you don’t want any surprises later in the process that could delay your closing or cause your mortgage rate to increase.
If you find yourself accidentally doing any of these “Don’ts”, then contact us at Cliffco Mortgage Bankers today! We can check the status of your application and help you through the approval process.