The Top Mistakes to Avoid When Applying for a Mortgage
5.11.2023 | Category: Article
Applying for a mortgage may seem daunting, especially for first-time homebuyers. However, with careful planning and guidance, the process can be manageable and even exciting.
By taking the necessary steps and avoiding common mistakes, you can increase your chances of getting approved for a loan and moving one step closer to owning your dream home.
Working with a reputable lender like Mutual of Omaha Mortgage, can help you every step of the way, to avoid delays or challenges when getting approved for a loan. To help you avoid these common pitfalls, we've compiled a list of the top mistakes to avoid when applying for a mortgage.
Not Checking Your Credit Score Beforehand
Your credit score is one of the most important factors that lenders consider when deciding whether to approve your mortgage application or not. Before applying for a mortgage, it's important to check your credit score to ensure that there are no errors or discrepancies that could negatively impact your score.
Some common items to check for include your personally identifiable information such as your name, addresses (present and past) and account information. Anything that might not look familiar, could be a sign of fraud and should be reported and corrected with the three credit bureaus before applying for a mortgage.
If your credit score isn’t where you want it to be, you may want to consider taking steps to improve it before applying for a mortgage. You can start by paying down debt, starting with making payments more than the minimum due. If you can keep your overall debt below one-third of your available credit, that’s ideal. Your credit utilization is assessed when approving mortgage applications and a low credit utilization ratio helps when locking in your rate.
Not Saving Enough for a Down Payment
While it's possible to get a mortgage with a small down payment, it's generally recommended to put down at least 20% of the purchase price. To avoid not saving enough for a down payment, set a savings goal, create a budget, and automate your savings.
You should also use cash windfalls wisely. If you receive a bonus or tax refund, consider putting all or a portion of it toward your down payment fund. You can also get creative with saving for a downpayment by using down payment assistance programs, including grants, loans, and other financial incentives.
Overextending Your Budget
When applying for a mortgage, it's essential to have a realistic understanding of your budget. This may seem like obvious advice, but first time homebuyers often need revise their expectations of their first purchase, especially in competitive markets or up-and-coming neighborhoods.
Homebuyers should always get preapproved before they start looking at properties. Then, work with a reputable agent that knows the area well enough to review your budget against what you’re hoping to purchase.
Before you make an offer, be sure to calculate all of your expenses, including mortgage payments, property taxes, and insurance, to ensure that you can comfortably afford your monthly payments.
Changing Your Financial Situation During the Application Process
Once you've started the mortgage application process, it's important to maintain a stable financial situation. Changing jobs, taking on new debt, or making large purchases during the application process can negatively impact your chances of getting approved for a mortgage. Be sure to consult with your lender before making any significant financial changes during the application process.
Not Providing Accurate or Complete Information
Providing inaccurate or incomplete information during the mortgage application process can result in delays or even rejection of your application. Be sure to provide all required documentation and be transparent about your financial situation to ensure a smooth application process.
This might seem intuitive but if you’ve legally changed your name at some point, for example, your state issued identification needs to match your application forms. Without your legal name consistently reflected throughout your paperwork, it could be considered incomplete and you could run into issues.
Another common mishap is not having enough documentation to prove you have the qualifying income requirements or employment. Lenders require several documents during the mortgage application process, including tax returns, pay stubs, bank statements, and employment verification. Gather these documents before applying to ensure a smooth application process.
Not Working with a Mortgage Professional
Finally, one of the biggest mistakes that homebuyers make is not working with a mortgage professional. A mortgage professional can provide valuable guidance throughout the application process and help you navigate any issues or obstacles that may arise.
Failing to Shop Around for the Best Mortgage Rate
One of the biggest mistakes that homebuyers make when applying for a mortgage is failing to shop around for the best mortgage rate. Different lenders offer different interest rates, and failing to compare rates could cost you thousands of dollars in interest over the life of your loan. Be sure to do your research and compare rates from multiple lenders before making a final decision.
Applying for a mortgage can be a complex process, but it doesn't have to be overwhelming. By following these tips, you can increase your chances of getting approved for a mortgage and securing your dream home.
And when you’re ready to apply for a mortgage loan, contact a Mutual of Omaha Mortgage specialist.