The Top 7 Mistakes That May Prevent You From Getting a Mortgage

Yikes!!  Today in my FB news feed I saw that one of my clients bought a new vehicle….(yes, I love that my clients are my friends and my friends are my clients!!!)  I was thrilled they were able to get a shiny new car…BUT.....I gasped a little as I knew this may have an effect on their pre-approval.  I made a few quick calculations and then a phone call …. Phew…. All was well but – "No more buying cars in the midst of our transaction please" -- this little seemingly unrelated event could have prevented my clients from getting a mortgage.   Do you know what could prevent you from getting a mortgage?  Here is a list of the top 7 mistakes that may prevent you from getting a mortgage.

1-      Your credit score.  I’m pretty sure that everyone is aware of the importance of a high credit score but did you know that it can also make a difference in your rate?  This will factor into how much your mortgage payment will be and if your score is a little low, making your rate a little higher… you may have a problem with your debt ratio….. we’ll talk about that next.  Moral of this story…. Understand how your credit score is driven so that your credit actions drive it up!

2-      Your debt ratio. Your debt ratio is the amount of your monthly credit payments… like your car payments, credit card payments and your proposed mortgage payment…. Divided by your monthly income (gross…before taxes and deductions).  Most lenders want your debt ratio to be under 45.  If you buy a car in the middle of the mortgage pre-approval process it could possibly bump your debt ratio up.  This may result in not being able to qualify OR having to lower your purchase price.  Make sure that you talk with your mortgage professional before making any new credit actions while you are in the process of getting a mortgage.  Your mortgage professional will be able to give you the guidance you need so you don’t make a mistake and cost yourself the loan.

3-      No credit.  Gone are the days when it was ok not to have any credit.  If you want to obtain a mortgage you will have to demonstrate you are responsible with credit.  In order for a lender to give you a loan, they must know what your credit habits are.   The lender does this by looking at your credit history.  To be an ideal candidate a lender would like to see that you responsibly pay your installment loans on time as well as your revolving credit.  They also prefer to see that you keep your revolving balances managed…. (this will also help keep your credit score higher...bonus).  Check with your mortgage professional to get the specifics details of credit requirements if you have never had credit or you don’t have any credit reporting currently.  A mortgage professional will be able to guide you in the best way to obtain credit or possible ways of using alternative credit.

4-      Down Payment.  Most lenders require you to put a down payment in order to get a mortgage.  Talking to a mortgage professional before buying a house will give you the details of how much of a down payment will be required, if it can be gifted or how long it needs to be in your bank account before it is an acceptable source for a down payment.  Of course there are some FABULOUS down payment assistance programs available so make sure you talk with a mortgage professional to get pre-approved before you start shopping for the perfect home.  Also, you may need to have some savings (reserves) in the bank, a mortgage professional will be able to let you know if this is a requirement of your specific loan program.

5-      Closing Costs.  When you are saving for a down payment also remember there will be some closing costs involved.  Many times your realtor can negotiate with the seller to pay some of these closing costs.  The amount of closing costs the seller can pay will depend on your loan program so make sure your mortgage professional is involved and is communicating with your Real Estate Agent right from the beginning.  You don’t want to get to the end of the deal and be short on your funds to close.

6-      Job history.  Believe it or not you do need to have income coming into your household when you obtain a mortgage so just because you are pre-approved does NOT mean you can now quit your job.  It is possible that a lender may ask for a paystub or do a quick verbal verification to your employer right before the funding of your loan to make sure you are employed.  If you are anticipating a job change before you close on your mortgage, make sure you speak to your mortgage professional to make sure there won’t be anything that will hold up your transaction.

7-      Mortgage Pre-approval.  I can’t express enough how important it is to meet with a mortgage professional before beginning the process of buying a home.  I know sometimes it feels scary because you might not be ready to buy right now but by meeting with a mortgage professional you can put together a road map with all the details in place so when you FALL IN LOVE with that PERFECT house.  You can be confident that you are ready to move forward and there won’t be any anxiety in losing your Earnest Money Investment. 

Buying a house is exciting and there is a lot to know.   Find a mortgage professional you feel comfortable with and ask a lot of questions.  This is likely going to be one of the largest purchases you ever make, you owe it to yourself to do the homework and understand what you are about to step into.  I’ve been in the mortgage industry for 20 years and the reason I started was because I truly wanted to understand what the process of getting a mortgage was all about, I love to answer my clients questions and help them feel comfortable about making this fantastic step into home ownership.  Call or email me to set up a mortgage consultation.  –Sheri Joi,  sherijoi1972@gmail at gmail dot com