Not Checking Your Credit
You should know where you stand in the credit score department before you look for a mortgage. After all, a bad credit score can bump up your mortgage interest rate several percentage points or leave you with no approval at all. Be sure you check your credit early in case any changes need to be made.
Applying for New Credit Alongside the Mortgage
In this same vein, be sure to avoid applying for any other type of credit before and during the mortgage application process. Whenever you apply for new credit, you’re seen as a greater credit risk, at least initially. If you happen to apply for a credit card or auto loan around the same time you apply for a mortgage, your credit score might get dinged enough to kill your eligibility or bump up your interest rate.
Failing to Look at the Total Housing Payment
A mortgage payment consists of principal, interest, taxes, and insurance (PITI). A common Remember to factor in property taxes and insurance premium into the overall mortgage budget. The debt-to-income ratio (DTI ratio), used to determine if a borrower will qualify for a certain mortgage payment, is calculated by dividing the proposed cost of PITI by gross monthly income.
The bank or lender will want to see that you can actually pay your mortgage each month. But without seasoned assets, those that have been in your own account for at least a couple months, you could be out of luck entirely.
Job Hopping & Not Getting Approved Before Hand
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.
Before shopping for a home, make sure you can actually qualify for financing by getting a pre-approval. A mortgage pre-approval is more robust than a simple pre-qualification because the bank pulls your credit and looks at your income, assets, and employment. With this pre-approval, you will also get a written commitment from the lender that will show home sellers you’re serious about the purchase.
Putting All Your Eggs in One Basket
But just because you’re pre-approved with one bank doesn’t mean you need to obtain financing from them. 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. Don’t be one of the many consumers who obtains a single mortgage rate prior to applying.
Shop around for the lowest rate and closing costs, 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 negatively amortizing, meaning your mortgage balance is growing each month.
Forgetting to Lock Your Rate
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. 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, but the max usually is 30 days.
Read this useful article, Mortgage Refinance: What If Rate Drops After You Lock? And, be sure to check out this video about Refinancing Your Home Loan.