Don’t drop the ball before your home loan is approved
Many people cannot purchase their dream home without taking out a mortgage to help cover the cost. If you’re one of those people, make sure you don’t jeopardize your home loan application with any these pre-mortgage blunders…
Maxing out your credit cards
With the expenses of purchasing a new home, it’s easy to run up your credit card debt and max out your cards. One of the factors taken into consideration when determining your credit score is your credit utilization ratio, also known as debt-to-credit ratio. This figure represents how much of your available credit you’ve utilized, compared to your total available credit. Keep the ratio as low as you can, at least below 30%.
A mortgage lender wants to know that you have a stable job, helping to assure him that you have the means to repay the loan. If you change jobs right before applying for a home loan, it could look like you lack the stability at the new job to make such an assurance.
Closing credit accounts
At first glance, you might think closing a credit account would help you get your mortgage loan. It can actually hurt your mortgage loan chances. When you close a credit line, it reduces your total available credit, and that can throw off your credit utilization ratio. In most cases, don’t close a line of credit right before applying for a mortgage.
Switching banking institutions
You may be sensing that keeping things stable before your mortgage application is important, and you’d be correct. Maybe you received a great offer to open an account at a new bank, but pre-mortgage application is not the time to leave your banking institution. Keep things steady for now, and feel free to change banks after you move into your dream home.
Becoming a co-signer
When you co-sign on someone else’s loan, you’re committing to the lender that if the main borrower does not pay up, you will pay them back instead. Your mortgage lender looks at co-signing as if it were your direct financial obligation, because… it can become exactly that.
It may be tempting to miss a payment here or there to purchase things you need for the new house. Resist that temptation. To a mortgage lender, missing one or more payments on your current obligations looks like you don’t have the money to cover your expenses. If you’re struggling to keep up now, what will happen if you add a mortgage payment to the mix? That’s how your potential lender views missing payments. Just don’t do it.
If you need a mortgage to purchase the home you love, stay on track financially and avoid these mortgage-loan-busting pitfalls.