(Newswire.net — April 16, 2019) — Going through a house hunt is a challenge not for the faint-hearted. It is a process that takes a lot of preparation and footwork. So, when you have found the perfect house, with all your must-haves you most possibly do not want to risk not closing on it. You could check the USDA address search to verify if you are eligible for the loan.
Unless you have a fairly godparent that can buy you that dream home from their pocket, you will need the assistance of your bank. Unfortunately, your bank might not love that large Cape Cod home that you have your mind set on. Not unless you have taken the time to prepare beforehand and become the best candidate for a mortgage you can be.
If you get into the arena unprepared, you will risk incurring high-interest rates on the money borrowed. You could also get less cash than you need from your financier to buy the house that you want. Worse still your mortgage lender could throw out your application out of the window, leaving you rejected, neglected and without the home of your dreams.
Moves you should avoid making when applying for a mortgage
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A high debt loads
If you have been feeling like all you do recently is pay your bill collectors and not save much, you could be in too much debt. You need to sit down and list all the debt you have and compare it to what you earn to diagnose the health of your finances.
A debt load is a term used to describe the amount of debt you have. Lenders love to zero in on your debt load to know if you have good or bad debt. They do this by comparing what you earn versus your current debt to figure out your debt vs. income ratio.
If your debt/income ratio goes beyond an acceptable threshold, say 43%, most lenders will consider you a risk. So, if you are planning on taking out a mortgage one of the very first things you should do is reduce your debt load.
Personal, student, credit card or car loans will adversely impact your debt load. Your lenders will look at it, and if you have racked up too much debt, they will turn you away. Clear as many loans as you possibly can before approaching your creditors so that you will have a healthy debt/income ratio.
Avoid taking on more loans also if you are planning to take a mortgage. If you have to, wait until your mortgage application has passed the test.
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Unfettered plastic money debt
The average American credit card holder has at least $5,472 in credit card debt. The nation’s’ credit card balance hit the $1 trillion mark in 2018 as per the Federal Reserve’s statistics. This is the highest it has been since the recession.
Back to our income vs. debt ratio discussion. A recent survey done via just right loans, credit cards loans will be factored in by your mortgage lender when calculating the debt/income ratio that decides the fate of your dream house. So if you maxed out all your plastic cash, you would have what lenders love to call a high credit utilization ratio.
If your ratio is above 30% of your credit limit, then you will not only lower your credit score, but you will have a DTI ratio that puts off mortgage lenders.
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Blowing your savings
Unless you are legible for a VA or USDA loan, you will definitely encounter various out of pocket payments when purchasing a home through a mortgage loan. Mortgages, first of all, require a down payment, whose rates range from 5 to 10% for conventional mortgages and 3.5% for FHA loans.
By the time the house purchase deal is done, you will have parted with thousands of dollars in closing and other costs. Your lender will most likely request for a bank statement of your account to ensure that you have adequate monetary reserves which makes you less of a financial risk.
It is essential therefore to put off that unplanned holiday to the Maldives and save as much money as possible to ensure smooth sailing when petitioning for a mortgage loan. See that large screen TV ad you are drooling at right now? Put it off till you have signed on the dotted line.
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Switching jobs
Most lenders like to work with borrowers who show stability underemployment. This translates to on-time repayments of loans. Switching jobs or making a career change right in the middle of your mortgage applications might blow your chances of qualifying for one.
Mortgage institutions usually lend to employees who can prove at least two years of steady employment. Not that they will disregard a self-employed person, but in the end, all they want you to show is that you have the means to payback your installments on time.
If you have found greener pastures in your field of work, then this might not hurt your chances. But do not go making extreme career changes if you are planning to buy a home. Maintain the status quo until the financing is the bag.
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Cosigning on loans
Do you have friends, family or children who require you to co-sign on their loans as a guarantor? If you agree to it, while in the process of home purchase you will be telling your lender that you are partly culpable for that debt. This is legally right because if the person you have cosigned for fails to keep with their loan payments, your credit scores will take a severe hit.
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Marrying a spouse with a bad credit score
Most couples immediately think of purchasing their nesting place together soon after marriage. If the house is going to be owned by the two of you, your lenders will pore through both of your credit scores and financial history as well. If your spouse has a poor credit score, the first step before home purchase would be the payment of loans to clean up their credit score.
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Making large deposits
If you are lucky enough to have family or benefactors willing to pay for your house’s down payment, ensure that the deposit to your account is made early enough so that lenders will not wrinkle their nose at it.
Mortgage lenders will smile at an account that has had a good amount of money for months rather than one with a recent large deposit. Most lenders actually will request for a three-month account history when down payments are being down, and they will want a verified paper trail of all large deposits.
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Closing down a credit card account
To the layman closing down a credit card account to reduce debt, use sounds like a good financial move. Your credit score though improves when your credit card account is open and well serviced. Shutting down that line of credit will increase your debt to credit ratios and lower your credit score. So keep that card open and keep making your payments for better mortgage funding.
Over 63% of all American homeowners have had to take out a mortgage to finance the purchase of their homes. If you like the majority of home buyers need mortgage financing, avoid making moves that could hurt your financial credibility. Stay on track; make sound financial choices, and you will have your own home in record time.