What Not to Do When Applying for a Home Loan
- posted 9.17.2015
- Shantell Russell
- Personal Finance
Applying for a U.S. home mortgage is an incredibly exciting and intimidating time. During this time period, it is crucial that you avoid certain mistakes some individuals commonly make that will impede your ability to qualify for a loan. Purchasing a home requires patience, money, paperwork and of course a great deal of understanding. If you want to invest in real estate it is important to educate yourself properly and know exactly what mishaps to avoid during the application process.
Never Lie—Not Even if It's a White Lie
Because loan approval seems like such an important thing to an interested buyer, it might be tempting to falsify some facts when applying for a mortgage. Fox News noted there are a number of common factors many applicants fib about when trying to acquire a mortgage.
Lying on a home loan application is actually considered mortgage fraud and there are substantial penalties you may need to face if you decide to falsify any information.
Fudging how much income you make to help you qualify for a larger loan is one common lie. However, it's important to remember all bank statements, tax returns and W-2s are collected when you apply for a mortgage. The lender will find out and this can wind up leaving you without a loan, substantial fines and potentially even time in prison.
In addition, Some borrowers believe they do not tell the entire truth about the origin of their down payment. For example, if you need to borrow money from a family member this is considered a debt because you now owe this individual money. Ensure you are completely honest about all aspects.
Figure out What You Can Afford First
According to The Truth About Mortgages, one of the more common mistakes loan applicants make is not first figuring out exactly what they can afford when looking to purchase a home.
Sit down and figure out your debt-to-income ratio and how much you can realistically afford to pay for a down payment, closing costs, monthly home maintenance, mortgage payments as well as property taxes. Knowing this before applying will help you be more realistic when going to a lender.
Be Careful When It Comes to Your Credit
Make sure you know your credit score and have worked at improving it before applying for a home mortgage. According to U.S. News & World Report, a bad credit score can impact the interest rate you wind up paying over the entire life of the loan.
Make sure to pay on time and in full when you can. Eliminating as much debt as possible will help increase your credit score.
In addition, you should remember lenders consider potential borrowers' debt-to-income ratios when deciding whether to approve them for a mortgage. Making a major purchase, like a car or furniture, and charging a credit card right before signing for the mortgage to try to sneak it by a mortgage lender is still considered mortgage fraud. Your signature indicates all information is correct on the application and when it isn't up to date, that can wind up hurting you in the long run, according to Fox News.
Don't Make Any Major Changes Before Applying
When you decide to buy a house, you should put off making any major changes to your life, like switching jobs, right before signing for a mortgage. Steady income and employment are one of the major factors lenders consider when evaluating an applicant and switching jobs right before doesn't showcase your stability very well.
Wait until after you have purchased the home before deciding to change careers if you can help it.
Don't Forget to Shop Around Before Signing
U.S. News & World Report noted many individuals only apply for a mortgage at one place. It's important not to settle for one rate. Remember you can shop around and get the best deal, just like you would for any other purchase. Comparing lenders and rates your approved for will help you save a substantial amount in the long run.
Make sure you do a little research ahead of time and know exactly what to avoid and how to best go about the mortgage application process.