Let’s face it, looking at homes for sale is a lot more fun that sitting down with a lender to find out how much you can spend on a home. Unfortunately, the latter is the very first step you should take and, sadly, not doing so is the biggest mortgage mistake homebuyers make.
Secondary to that is the assumption that once someone is approved for a mortgage, nothing else can go wrong.
Loan preapproval isn’t a loan guarantee. The preapproval is conditional on a number of factors and it can be revoked at any time during the process – including just before closing.
Do yourself a favor and avoid some of the more common mistakes homebuyers make when it comes to getting a loan for a home.
Mistake #1: Not checking their credit reports
Did you know that nearly 34% of Americans’ credit reports contain errors? According to the experts at consumerreports.org, these errors often result in a lower credit score and the denial of credit.
Mortgage experts recommend that homebuyers check their credit reports before visiting a lender for loan preapproval. Find a list of the most common errors on credit reports at consumerfinance.gov.
Get your free copy of your credit reports (once a year) at AnnualCreditReport.com. This is the only source that is authorized and recommended by the U.S. government to provide free credit reports with no strings attached.
Dispute any issues on your report before applying for a mortgage.
Mistake #2: Not being honest on the mortgage application
Prior to the Great Recession, lenders were busily providing what have come to be known as “liar loans.” These were mortgage loans to people that couldn’t afford them and were obtained by means of a “no document” process, meaning the applicant didn’t have to prove his or her income or verify assets.
Those days are over and obtaining credit is nowhere near as easy as it once was. Although you may be tempted to stretch the truth on your application to ensure you get the loan, don’t give in to the temptation.
More than half of the mortgage fraud cases that the FBI deals with are those with lies on the mortgage application, according to a FBI special agent at fbi.gov.
There is no such thing as a “little white lie” on a mortgage application. Mortgage fraud penalties, by the way, can be … “… as high as 30 years in prison and a $1 million fine,” according to Kirk Haverkamp at credit.com.
Lenders verify everything on the application.
Mistake #3: Taking a new job before the close of escrow
One of the first things the lender will look at is your employment history, looking for a minimum of two years with your employer or in your current line of work.
While switching employers during the loan application process may not derail the loan, it will most likely delay the process while the new employment and salary are verified.
Mistake #4: Making major purchases on credit during the escrow period
When you finally get an offer accepted on a home, it’s normal to think about shopping for furnishings and appliances.
Don’t do it.
Lenders typically pull a borrower’s credit history one last time just before closing to ensure that the financial picture hasn’t changed.
The new debt will raise your debt-to-income ratio and you may no longer qualify for the loan.
Put the credit cards away and save the shopping for after the loan closes.
The mortgage process isn’t nearly as fun as house hunting, but it’s the most important step in the process.
Don’t make any major financial or life changes between applying for the loan and closing escrow and you should have no problems.