Thinking of Buying a Home this Year? Avoid These Common Mistakes
Shopping for homes before getting pre-approval.
This is a common mistake when it comes to the homebuying process. Many first-time buyers make the mistake of shopping around and touring homes before they speak with a lender. Why is this an issue? There are a few reasons. A letter of pre-approval will let you know exactly how much you can afford to borrow so that you can start shopping within your budget, and avoid falling in love with a home that you can’t afford. In today’s hot market, a letter of pre-approval is the golden ticket needed when putting an offer in on a home. When sellers receive multiple offers on their home, they know they can trust an offer from buyers that have been pre-approved to purchase their home.
Making any big purchases before or during the mortgage process.
The homebuying process is often sparked by another life event, such as getting married or having a baby. You might feel the need to buy new furniture or purchase a new baby-friendly vehicle before or during the mortgage process. However, adding any new debt could offset an important ratio used during the loan process: The debt-to-income ratio. This ratio is critical when determining whether you will be able to make your monthly mortgage payments. We’re not saying that you can’t make these purchases before you start the mortgage process, but it is good to know how they can affect your buying power. During the mortgage process, however, it is critical to steer clear of any large purchases until you have closed on your loan.
Missing any monthly payments
It shouldn’t be a surprise that lenders look closely at your credit and payment history to determine how likely you are to pay them back. Missing a payment could negatively affect your credit, which could cause you to qualify with a higher interest rate, or worse, not qualify at all. If you have recently missed a payment, speak with your lender to see what options you might have to get back on track.
Saving Up Cold Hard Cash for a Downpayment or Closing Costs
You may have been told in the past that “cash is king,” but not the case when it comes to mortgages. Mortgage lenders operate under strict government guidelines that require them to track and document where your cash deposits came from. The government, and your lender, want to ensure that the money was not obtained illegally, or that it is not being loaned to you under the table. They also want to ensure that your real estate transaction is not being used to launder money for drug or terrorist organizations. This is why it can be tricky when you make large cash deposits into your bank account during the mortgage process unless you can document exactly where it came from.
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