Some Things Not to Do Before Applying for a Mortgage

Home Mortgages - cash houseEveryone is telling you these days how hard it is to get a mortgage on any type real estate. But, did you know there are some things that you can do to make it even more difficult to meet the qualifications. New regulations force loan specialists to check each part of a borrower’s budgetary foundation, before making the credit approval for a new mortgage loan. Also, most banks have tightened their qualification criteria because of misfortunes that they probably caused with more lax lending practices that lead to the housing meltdown. It’s more like a swing form one side to the other; lax loan approval in the past – difficult loan approval now!

So, at least take some advice here and abstain from doing anything that may hurt your possibilities of getting that shiny new home. Here are a few things specifically you ought avoid before going in to start your application for that mortgage:

Don’t take on new loans you don’t have to!

This may seem obvious but wait on that new car, tv or whatever. These loans build on your total obligations and these are considered. Auto loans are real killers on the budget and may keep you from qualifying for the home you really want.

The loan specialist or mortgage broker is going to add up all your current monthly obligations that you have right now. These monthly obligations are going to be looked at against your monthly salary and a Debt To Earnings or Income ratio (DTE- DTI) is determined.

You want to do the exact opposite thing and try to pay off anything that might have just a few payments left on it to give you the maximum impact of lowering this score. This way you do not need to list them on your application and that is a real benefit to the ratio. Your Debt Ratio, as it is also sometimes called, needs to be as low as you can make it before you apply for that loan. So put off those new consumer loans until after you get moved in.

 

Don’t blow the savings account!

Down payments requirements are going up. And, savings accounts are going down all across America. Don’t fall into this trap. Wait on the fancy vacation. Stay away from eating out at the expensive restaurants. Keep yourself focused on having as much cash in the bank when you go to apply for the loan as possible. Unless you are able to take out VA loan ( or USDA) which can offer up to 100% financing of the purchase price of a home, you may need as much as 20% down to acquire good financing terms. And most lender will take on the need for Private Mortgage Insurance it you loan amount drops below that 20/80 rule. Plus the more you put down typically the better the interest rate offer. So hang on to that cash!!!

Hide the credit cards!

This one should seem obvious, but many families pile on debt with credit cards thinking that they are building their credit only to get trapped into a turn down because they now have too much credit card debt to secure that needed financing for their new home.   The credit card debt as discussed earlier is going to be added into your debt ratios and this can be a killer for the deal and getting any mortgage at all. Also, credit card debt obligation stands out as a real negative with loan under writers. A history of high credit card debt can make you look less attractive in the loan approval process and cause you to look like a more dangerous risk to the lender.  High credit card debt is one of the key things that can drive down your FICO credit score also. For the best rate and terms – hide those credit card and put a smile on your mortgage banker face when he fills out the loan application.

I love this video about budgeting from Making Life Simple. It you are having some trouble qualifying for a new home mortgage, or just starting to look for that “home for sale”  or you are a first time home buyer check it out:

Keep all your payments current, not even a little late!

Missing payments even on small things can drive down your FICO credit score. A high score is letting the bank know that you are less of a danger when it comes to paying back the loan. It may not seem like much to be a little slow on paying a small payment now and again but this is going to drive down your credit score. Before applying for that new mortgage, make sure you are very prompt with all payments the last thing you need at application time is going to be a slow pay currently showing on that credit report.

Do everything you can to make sure that payments are made before due dates and allow enough time for mail and posting. We live in a high paced electronic world where your payment obligations can get posted minutes before you apply. So don’t risk that surprise when you go to your new mortgage loan. Stay the course and keeping that FICO score up. Being current on all your obligations and paying them in a timely manner is the biggest factor in doing that!

Your installment payment history represents 35% of your general score – more than any other single component. One lone late payment can drop your score significantly. I once had a 15 dollar charge that I forgot about from a retail store credit card keep me from obtaining a loan. It took me almost a year to get my score back up from just that small indiscretion.

In closing keep in mind that you’ll have additional closing expenses that will eat up your cash and your lender is going to expect you to have some reserve for this also. He/she is not going to risk that you run up credit card debt after closing because you don’t have enough of that cold hard cash.

For some more helpful information, first time home owners expecially should visit The HUD.gov website. Here is a link a useful PDF: http://www.hud.gov/news/homeeconomics.pdf