For most people, a home is the single largest investment they’ll ever make in their lives. The vast majority of today’s homeowners buy a home through mortgage financing, which can be tricky if you’re not sure how it works. With all the documents, factors, and requirements that go into applying for a mortgage, it can be easy to make mistakes, some of which might cost you money and slow down the mortgage process.
This guide will help you know these mistakes and how to avoid them.
Ignoring Your Credit
Always, always, always check your credit before applying for a loan, especially a home loan. Checking your credit early on will help you avoid nasty surprises down the line that delay the mortgage process. Fortunately, getting a free copy of your credit report is as easy as going to the websites of the major credit reporting agencies, Experian, Transunion, and Equifax.
You’ll have to pay to see your actual score, but the free report will still reveal credit issues that you can resolve as quickly as possible. Remember, creditors are known to make mistakes, so don’t let any discrepancies hurt your score and cause you to pay higher fees.
Making Career Changes Before Closing
Aside from your credit score, your current employment status, income,and work history are factors that influence the mortgage application process.
Lenders look at several angles when it comes to your employment income, how long you’ve been employed, your employment stability, and of course, how much your make every month. Lenders want to see a nice stretch of stability over the past 24 months, so the last thing you want to do is quit or change jobs in the middle of the mortgage process.
Not Checking the APR
You need to understand the difference between the mortgage rate and annual percentage rate (APR). Most lenders advertise low mortgage rates to entice potential homeowners to apply with them. But what they don’t know is that the mortgage rate is just one side of the story.
While the mortgage rate will determine how much you pay every month on your mortgage, the APR will tell you how much it will cost to get the mortgage, affecting fees such as mortgage insurance, loan origination, and processing fees. In other words, your APR determines the true cost of the home loan.
Making a Big Purchase Before Closing Your Mortgage
It’s easy to get caught up in the euphoria of moving into a new home. Naturally, most people want to celebrate the occasion by buying new things for their new abode, such as new furniture, new appliances, or even a new car. The problem is that most lenders will take a second look at your credit before closing the mortgage.
If new inquiries from multiple lenders appear on your report, you might have to sign new paperwork to explain why these institutions felt the need to inquire. You also have to disclose if these inquiries led to credit extensions or a new purchase.
Whether you’re buying a new home or refinancing, it’s always a good idea to know what mistakes to avoid so you can prevent delaying the mortgage process. If you want to learn more about home loans and the mortgage process, get in touch with Chris Lamm for a consultation.