Are You Sabotaging Your Mortgage Application?
You found the house you love. Now you have to get a mortgage. Most buyers who have gone through this process before would agree that this is the most treacherous part of buying a property.
Obtaining a mortgage has many steps. As a result, there are lots of opportunities for missteps.
But don’t worry, we’re here to help! Here’s how to avoid sabotaging your mortgage.
Don’t Wait Until You Can Make a 20% Down Payment
It seems that the 20% down payment is the gold standard when applying for a typical loan. Doing so means that you can avoid paying the private mortgage insurance or PMI.
PMIs can range from 0.3% to 1.15% or your total loan amount that is paid as a monthly payment. But with mortgage rates low and expected to climb soon, waiting around for your bank account to hit that number could be a mistake. Housing prices are continuing to climb and that means you could end up paying more.
Start talking to your lender about home buying options now so you know a ballpark figure on what you can afford. They will look at how your down payment will affect your finances and give you an idea of what you can expect.
Don’t Meet With Just One Lender
Recent data shows that about one half of home buyers meet with only one lender throughout their home buying process. But when you only look at one lender, you miss out in a big way. Getting even a slightly lower interest rate can save you plenty of money in the long run.
A 30-year fixed rate conventional loan can get rates that vary by more than half a percent. So, getting an interest rate of 4.0% instead of 4.5% on a $200,000, 30-year fixed mortgage translates into savings of approximately $60 per month, or $3,500 over the first five years.
To make sure you get the best possible deal, pick at least three different lenders to meet with. Start your search early and get a good-faith estimate from each one. This will break down the terms of the mortgage, including the interest rate and fees, so that you can make an apples-to-apples comparison between offers.
Don’t Get Pre-Qualified, Get Pre-Approved
There is a difference between being pre-approved for a mortgage and being pre-qualified. Pre-qualification is just a basic overview of a borrower’s ability to get a loan. You give the lender basic information but are not required to back it up. Because you aren’t going into specific details on a lot of information, you’ll get a rough estimate of what size loan you can afford.
When you get pre-approved, it is an in-depth process that involves a lender running a credit check and verifying your income and assets. After that, an underwriter does a preliminary review of your financial portfolio and.
If the lender thinks you are a candidate for the mortgage, you will get a pre-approval letter. That is a commitment in writing from your lender for a loan up to a certain amount. With this competitive real estate market your offer may not be strong enough without one.
Don’t Change Jobs
Two years of consistent income is important to get your pre-approval letter. Changing jobs while you are under contract can be a big issue to the underwriters of your loan. If you are ready for a job switch, wait until you close on your new home before accepting a different position.
Don’t Move Money or Make Big Purchases
Once you get pre-approved you need to keep your finances the same. If you move money around to different accounts or open any new lines of credit, it could jeopardize your ability to close on your home.
Getting a mortgage involves a number of moving targets. In order to succeed in getting approved, home buyers need to be sure to do everything right. As you move through your mortgage process, keep the above information in mind so as to put yourself in a position to be approved.