10 Major Mortgage Mistakes to Avoid Today

Getting a mortgage is no simple task: It’s a complex and time-consuming process, and perhaps one of the most significant events of our lives, at least in financial terms. Here are ten potential pitfalls to avoid:

1. Not Seasoning Your Assets: Your bank or lender will want to see that you have actually saved some money for your downpayment, closing cost or what the call reserves (money that’s left over after buying the house).  The look to see that those assets have been in your account for at least 2 months or that you have a history of saving.   Unseasoned assets or unverified sources of money can cause some serious issues including your loan being denied.  Some borrowers seem to think they can transfer funds from a relative’s account days before applying or drop in large deposits or “Mattress Money” shortly before applying or closing, but this simply won’t fly once the underwriter uncovers the paper trail and your loan will be denied.

2. Applying for New Credit along with the Mortgage: In this same vein, be sure to avoid applying for any other type of credit 2 months before and during the mortgage application process. Whenever you apply for new credit, you’re seen as a greater credit risk, at least initially. This is simply do to the fact that your might have another debt that you forgot to list.  Get the house first, then the new car.  Many loans have been denied because the Lender saw a recent credit inquiry on the borrower’s credit report only to find out that the borrower forgot to mention the new car loan they got last month.

3. Job Hopping: Another key to mortgage approval is steady employment and income. An underwriter will want to know that the income you bring in every month is consistent and expected to continue into the foreseeable future. So don’t jump from job to job too much before applying for a mortgage. If it’s in the same field, it shouldn’t be a deal killer, but a career change will lead to problems. If you’re thinking about jumping ship, wait until you’ve closed your mortgage first.  In the same vein, don’t quit your job.  Borrower’s act surprised when the day before their loan is supposed the lender calls their employer to verify they are still employed.  When they find out your not, everything will grind to a halt.

4.    Not Checking Your Credit: Long before you begin searching for a mortgage, you should know where you stand in the credit score department. A bad credit score can bump up your mortgage interest rate several percentage points or leave you with no approval at all these days.  Be sure you check your credit early on (several months in advance) in case any changes need to be made to get it back up to snuff.  There are many services that offer Free Credit Scores so there is absolutely no excuse not to do this simple task.

5. Not Getting Pre-Approved Prior to Looking at Houses:  Before shopping for a home, make sure you can actually qualify for financing by getting a pre-approval.  Nothing sucks more than finding the dream home and then learning that it is out of your price range.  A mortgage pre-approval is more robust than a simple pre-qualification because the Lender not only pulls your credit, but they look at your income, assets, and employment.  Your Debt to Income (DTI) ratio will also come into play to ensure you know exactly how much you can afford. With this pre-approval, you will also get a written commitment from the lender that will show home sellers and your Realtor you’re serious about the purchase.

6. Failing to Look at the Total Housing Payment:  Many borrowers just look at the cost of the mortgage.  However, there is more to the payment than just the principal and interests.  The total housing payment consists of principal, interest, taxes, and insurance (PITI)  plus Homeowners Association Dues.  A common mistake made by prospective home buyers is not factoring in their property taxes and insurance premium into their overall mortgage budget. . A $2,400 annual property tax bill would add $200 per month to an escrowed mortgage payment.  A $600/ year Homeowner Association bill ads $50.  These amount can add up and if you didn’t factor them into your calculation you could be in for a shock or a denial.

7. Not Shopping Around:   Just because you’re pre-approved with one bank doesn’t mean you need to obtain financing from them.   Maybe you have your checking and savings accounts with them and think they will give you some special deal.  Chances are they’re not doing you any favors.  Be sure to shop around with multiple banks and lenders and even consider a mortgage broker. A broker can shop your rate with a number of banks concurrently and find you the lowest rate with the best terms. Comparison shop as you would for anything else you buy. Be sure to compare not only the interest rates, but also all of the closing cost.

8. Chasing Around the Lowest Quoted Rate:  Shopping around for the lowest rate and closing costs is good, but not at the expense of your mortgage. Anything that sounds too good to be true most likely is.  If the payment seems too low, you might be paying interest-only or even be quoted an adjustable rate mortgage.   It’s best to keep it simple and go with a loan program you fully understand.  Also, keep in mind the mortgage rates change daily and sometime more than once a day so.  So if you are comparing rates and cost you need to do it all within a short period of time and not over several days.

9. Forgetting to Lock Your Rate and getting written proof: Keep in mind that a mortgage rate means very little if it’s not locked-in. If you’re happy with your rate, lock it. Again mortgage rates change daily and sometimes several times daily. All those mortgage quotes you obtain are just quotes until you actually tell the bank, lender, or broker to “lock it in.” Once locked, your rate is guaranteed for a certain period of time, be it 7 days, 15 days, or a month. But never assume your rate is locked until you get it in writing!  Always request written proof that your rate is locked and the terms and expiration of the lock.  A reputable Broker or Lender should have no problem providing this to you within 24 hours of your request to lock your loan.

10. Not Reading Your Loan Documents: Now you’re at the closing.  It’s your responsibility to read and accept the terms of your new mortgage. Sure, it might be a pain to go through all the loan documents at signing, but it’s a bigger pain to sign up for something you don’t want or agree with. Take the time at closing to ensure you understand everything you’re signing, and thereby agreeing to. And don’t be afraid to ask questions! Look over the NOTE, and the HUD-1 (Closing Statement).  If everything is not as agreed, don’t sign.  No verbal promises will honored by anyone.  Everything must be in writing.  Too many borrowers have felt pressured at the closing to sign something that is not correct only to regret it later.