Once you fall in love with a home, it can be tempting to rush into applying for a home loan, but failure to prepare properly may prevent you from being approved for a mortgage. To increase your odds of moving into your dream home, keep the following dos and don’ts in mind before attempting to secure a mortgage.
DO pay your bills on time.
It goes without saying that lenders favor applicants with good credit and staying up to date on payments for your current rent or mortgage, insurance, student loans, and credit card bills is essential for the health of your credit score. A single 30-day late payment can lower your credit score by as much as 30-75 points, and additional missed payments only exacerbate the problem. If possible, set your bills to autopay, so you don’t forget to make payments in your excitement over buying a new house.
DON’T pay off debts.
While contributing a little extra towards reducing your debt makes you appear responsible to lenders, avoid paying any debt off entirely unless your mortgage advisor specifically recommends that you do so. Although it’s counterintuitive, the seemingly responsible action of eliminating a source of debt is often punished with a decrease in one’s credit score.
DO continue using credit cards.
Lenders like predictability and charging approximately the same amount to your credit cards each month as you did before you began house hunting indicates that you are a consistent spender. This makes lenders more inclined to trust you and less inclined to view you as a potential risk.
DON’T open or close accounts.
Consistency also means that you should have the same number of lines of credit as you did before applying for a mortgage. Opening a new account or closing an existing one not only makes you look less predictable; it can also negatively impact your credit. If you need to open a new line of credit or get rid of an old one, wait until after you’ve bought the house to do so.
DO keep all of your paperwork in order.
It can be overwhelming to keep track of all the documents your lender will ask for, but having certain paperwork set aside before you apply can make the process a bit easier to handle. While the specific information you’ll need to have on hand may vary from one lender to the next, there are certain documents that you will definitely need—such as pay stubs, bank statements, W-2 forms, and tax receipts—so be sure to keep these in a place where they are easily accessible.
DON’T assume the documentation you have is enough.
No matter how diligent you are in providing paperwork for your application, your lender will likely still ask for more, so be prepared to do a little more digging through your file cabinet. Also, remember that some documents, namely credit reports, may not be completely accurate, so it’s important to check everything for errors.
DO maintain your career.
Another significant component of making yourself look reliable to lenders is proving that you have a stable career. Avoid spending so much time on the home buying process that you neglect your work, as the last thing you want is to jeopardize your position. Regardless of how much money you have saved up, losing your job will look extremely bad to a lender.
DON’T make major lifestyle changes.
Preparing to buy a new home is a big change, and it can be tempting to make other big changes along with it, like finding a better-paying job or buying a car. Unfortunately, such changes can raise red flags for lenders and should be avoided if possible. If you absolutely must make any significant life adjustments, be sure to consult your mortgage advisor first.
DO ask questions.
Many aspects of the home buying process may be confusing, but your mortgage advisor is there to explain anything that doesn’t make sense. Remember that buying a house is a huge commitment and not a decision you want to make without knowing all the details. Don’t hesitate to ask questions if anything is unclear to you.
DON’T try to go at it alone.
No matter how much research you do, you’re not a real estate or financial professional. Making even a small mistake, especially when applying for a mortgage, can cause your ideal home to fall out of your grasp. Therefore, it’s essential to employ an experienced real estate agent and mortgage advisor. If you’re ready to apply for a mortgage, contact Cross Timbers Mortgage to help make your dream home yours.