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Home / Loans / 8 Ways To Sabotage Your Mortgage Application

 

Mortgage ApplicationOften touted as the American dream, buying a home is a very complicated process that can stress any sane person. The last thing that you want to do is sabotage your own mortgage application, but many people do it anyway. Many are not even aware that they have shot themselves in the foot or that they have been doing it for years. Here are a few of the top ways that you may prevent your own loan approval.

Not Checking Credit Report

Step one for a lender is to check your credit report, so why wouldn’t you? You should pull your credit reports from all three major agencies at least one year before you start looking at houses. Go over to www.annualcreditreport.com to get them for free once a year.

Once you have the report in hand, start looking for errors. Dispute any errors that you find. If there are open collection accounts, settle them if possible. Make sure you are current on any student loans. Contact an creditor that is reporting negative information to see if they will remove the negative remarks from your report. Keep in mind that they are not obligated to, but may as a courtesy if the account is paid in full.

Letting Credit Card Balances Grow

Thirty percent of your credit score is built by your credit utilization ratio. The easiest way to impact that ratio is by paying down credit card debt. You need to have your balances under twenty percent of your credit limit in order to maximize your chances of being approved for a mortgage. After paying this debt down, do not close any accounts. This will shorten the length of your credit history and lower credit utilization ratio (closed accounts lower your credit limit total). You can lose up to fifty points by closing the oldest account on your credit report.

Paying Your Rent Late

If this is your first mortgage a lender, especially a government agency, may want a letter of recommendation from your current landlord and all landlords within three years. You may even have to show proof of having paid your rent on time for at least one year, so keep those receipts.

Job Hopping

We all switch jobs from time to time, but lenders do not like to see if happen too often. Getting a new job more than once a year could make it appear as if you are a high risk for a mortgage. Completely switching your career path can be harmful, as well. Try to hold the same job for at least two years prior to applying for a mortgage. Once you have the loan you are free to do as your please so long as you make the payments on time.

Not Saving Enough

The more money you put down the better. You may even be offered a lower interest rate for a higher down payment. Many unsubsidized loans require a twenty percent down payment. Also, you will not be required to carry mortgage insurance if you put twenty percent down. That will lower your monthly payments.

Forgetting To Shop Around

Loans are just like everything else, you may find a better deal somewhere else. Shop your loan to at least three lenders. Be sure to do the loan shopping prior to shopping for a home. This will help you fully understand how much you can borrow and under what terms, further guaranteeing your ability to repay the loan.

Not Negotiating Fees

A mortgage carries a high fee schedule. Fees for the appraisal, credit report fees, origination fees, title search, underwriting, processing…the list goes on. Fees may account for as much as five percent of your total loan. Many of these fees can be negotiated. The key is getting all of the fees associated with the loan in writing before you sign any documents. Once you have them in hand, start talking the lender down. If you have shopped your loan as recommended, you will have the knowledge that you can always go elsewhere if the fees do not drop as you want.

Being Dazzled By Your Approval Figure

Just because a lender says you qualify for a $250,000 loan doesn’t mean you should borrow all $250,000. Never agree to a payment that stretches your budget. Your job can change, you may have a child, or any number of unexpected life changes. If you stretched your budget from the beginning, you may well lose your house.

A mortgage usually accounts for the largest recurring expenditure that any household faces. Take your time building and repairing your credit history before applying. A little care along the way can save you thousands in interest over the life of a typical loan.

 

About the author: Jerry Coffey

 

Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.

 

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