6 Financial Mistakes to Avoid While Applying for a Mortgage
When homebuyers set out to get a mortgage to buy a new residence, they must protect their financial standing to remain qualified through closing. Any unexpected changes can derail the whole process, resulting in a denial and having to start over fresh. Worse yet, homebuyers may have to wait a while for the changes to stop having a negative effect on their finances. This can seriously delay homebuying plans, putting a damper on all the excitement. To avoid this scenario, homebuyers can make sure to avoid the six following financial mistakes while applying for a mortgage.
Applying for New Lines of Credit
Applying for new lines of credit can instantly derail mortgage acquisition efforts. Mortgage lenders take a close look at homebuyers' credit scores during the application process. They use that figure to determine if they can authorize approval. If so, then the credit score comes in to help set the terms of the loan. When homebuyers apply for a new line of credit, the inquiries can rack up and decrease their credit scores. As it can take up to six months for the score to recover, homebuyers should avoid applying for new lines of credit for at least that long before completing the mortgage application.
Closing Existing Credit Accounts
Although it might seem wise, closing existing credit accounts can have a negative impact on the credit score. This step tends to great increase the debt to income ratio used to assess credit utilization. When utilization figures go above 10%, lenders see red flags and fail to approve the mortgage application. Homebuyers not only need to leave these accounts open but use them from time to time as well. Otherwise, the lender for that card may close the account due to inactivity.
Building High Debt Balances
High debt balances can have a profoundly negative impact on efforts to acquire a mortgage. As with closing existing zero balance accounts, building up debt balances increases debt to income ratios. With this increase, lenders may determine that the homebuyers cannot cover their mortgage, household bills and debt payments. Upon making this determination, mortgage lenders will likely deny the mortgage application, leaving homebuyers scrambling for another solution.
Late and missed payments both impact the credit score by showing an inability to meet agreed upon payment terms. As lenders look at the credit worthiness of an individual, they want to see a healthy payment history across all bills. A history of payments as late as 90 days can derail efforts to get a mortgage, as lenders view that situation as high risk.
Quitting Their Jobs
Even with another job lined up, quitting work can result in a need to restart the mortgage application with the right information. Homebuyers must provide at least two years of income history to even begin to qualify for a mortgage. In addition, they must have their current employer fill out an employment verification letter. With a switch of jobs, this process must begin anew, delaying or derailing the mortgage application process.
Decreasing Their Income
When the job change comes with a marked decrease in income, mortgage lenders may no longer have the ability to authorize the loan. The income decrease also impacts that ever-important debt to income ratio, but from the other side of the coin. Homebuyers must have low enough debt balances to even out this income change or they may not receive their mortgage approval.
DeSoto County home buyers can greatly improve their chances of getting their much-anticipated mortgage approval letter by avoiding the above mortgage mistakes. With the right approach, it is possible for many to keep their finances stable enough to buy the home of their dreams.