What Missteps to Avoid When Wanting To Get Approved for a Mortgage

Buying a home is an exciting experience, but there are some important things to remember when applying for your mortgage. To make sure the process goes as smoothly as possible, it’s important to avoid doing certain activities that could disqualify you from getting approved or result in a higher interest rate. This blog post discusses seven common mistakes people make after applying for a mortgage and how they can be avoided.

1. Sourcing large sums of cash

Before making large cash deposits into your account, you'll need to check in with your loan officer and discuss the best way to document the transaction. This is because lenders need to source the money they are loaning; however, since cash isn't easily traceable, it's vital to document all transactions accurately. By discussing this with your loan officer in advance, you can ensure that all lending regulations are met and provide a smoother process.

2. Making any large purchases

It can be tempting to buy an expensive new appliance or furniture set when you’re preparing to move into a new home. But when applying for a mortgage, it’s critical to avoid making any large purchases—not just home-related ones. Lenders look at your debt-to-income ratio when assessing loan eligibility; anything that increases your debt could disqualify you from a loan. Keeping purchases to the strict essentials while awaiting loan approval is one way to ensure success in obtaining the mortgage even if it feels like a necessary purchase, wait until after you’ve gotten approved for the loan before diving into larger purchases.

3. Cosigning loans for anyone

When considering cosigning a loan, they should be aware that it’s not just a matter of signing the paperwork and being done with it. The contract carries a significant responsibility to ensure that the lender receives what was promised. Getting approved for financing could depend on careful analysis of the debt already committed to, including cosigned loans. Although a cosigner may not be actively making payments for the loan, their obligation remains—and should be considered when considering further financial commitments.

4. Switching bank accounts

When you are trying to purchase something major, lenders need to be sure they can trust your ability to pay back a loan in full. To do this, they have to source and track all of your assets – and the task can be quite complicated if your accounts are inconsistent. That's why it is important to speak with your loan officer before transferring money. This way, you can ensure that your lender has a clear understanding and record of where every dollar is being allocated, giving you the best chance at obtaining the loan you need.

5. Applying for new credit

Credit scores are an important factor to consider when making any financial decision. From purchasing a car to obtaining a new credit card, having your credit report run by organizations across multiple channels can seriously impact your FICO® score. Lower credit scores will not only determine the interest rate you are offered but could potentially impact your eligibility for approval. These factors make understanding your financial health critical in helping you make informed decisions regarding borrowing and ultimately achieving long-term economic stability.

6. Closing any accounts

Although many buyers incorrectly believe that decreasing available credit makes them less risky and more likely to be approved, the opposite is true. Your payment history is just one part of what determines your credit score. Two other key components are the length and depth of your credit history and the total amount of credit in use compared to available credit. Usually, when someone closes a credit account, it has a negative effect on both of those factors, resulting in an overall lower score. Therefore, reducing your available credit can make you appear riskier to lenders and lower the possibility of being approved.

7. Not discussing changes with the lender

Please be sure to stay open with your lender when pursuing a home loan. Any income, assets, or credit changes should be openly discussed before making decisions regarding the loan application. It’s also important to keep your lender updated on any recent changes in your employment status that could affect your eligibility and ability to repay the loan. These conversations are often difficult, but they'll help lockdown the best rate available and provide security and peace of mind when signing those all-important documents. Being fully transparent is always better than hiding information - it can save time, money, and stress down the line if unexpected issues arise.

To sum up, the process of obtaining a loan can be complicated and stressful. To ensure your best chance at success, following the above seven tips will be beneficial to getting the most favorable terms for getting a mortgage. If you would like assistance navigating the world of the home-buying process in the Chicagoland area, Deborah Benn with Real Estate Hub Spot is ready to assist you.