Applying for a loan is a detailed process, so it’s crucial that everything is accurate. If not, you might end up with a higher interest rate or be denied a loan you otherwise would have qualified for.
Be sure to discuss your situation with your lender and/or a financial counselor to determine what choices are appropriate for your unique financial position.
Paying Off Debt Right Before Applying
If you plan on applying for a loan or other type of credit in the near future, it’s generally a good idea to pay off as much debt as possible beforehand. This will help improve your credit score and make you more likely to be approved for the amount of money you need.
It’s natural for you to check your credit score and find an old account you forgot about. While you may have the money to pay off your debt, it’s not generally a good idea to make this decision just before applying for a mortgage. Any modifications in the history of a loan will usually be recorded as new activity and can harm your credit score.
Instead of looking at everything immediately before applying for a loan, examine your credit reports from all three major reporting firms six months to a year before you apply. This way, the negative mark won’t damage you and the most recent payment will not cause an unexpected drop in your score.
Not Learning About the Mortgage Process
The process of applying for a mortgage can be complicated and challenging. However, opting to avoid this internal battle will only result in negative financial outcomes. Find a mortgage specialist to guide you through the entire process so that you understand what is happening every step of the way. This specialist will help streamline the loan document production process and ensure that all agreements are clear to you before being signed.
Not Looking For Different Lenders
Many people are apprehensive about shopping with too many lenders. On one hand, it is reasonable. The mortgage application procedure might be time-consuming. And, if you’re familiar with how credit scores are generated, you’ll know that each inquiry has the power to slightly lower your score.
Despite the few drawbacks, it still is beneficial to shop with multiple mortgage lenders when seeking a mortgage. The process may be unnerving, but remember that this is something you will only have to do once and in return, it will benefit you for years. Even a small percent lower on the interest rate of one loan can save you thousands over time.
Making Another Crucial Credit Choice
The time when you’re looking for a mortgage is usually not the ideal moment to open a new zero-interest credit card account or buy a new vehicle on credit. While there may be discounts on new credit cards, opening a new inquiry might be a red flag to lenders, which can cause your credit score to drop a little.
If you find yourself without a car, see whether you can obtain another one on the cheap. This will contribute to your credit reports and raise your debt-to-income ratio. If feasible, try carpooling or taking the bus while you work out a mortgage loan.
Not Having a Steady Employment
If you get a new job, you may wish to inquire about the possibility of waiting until after your loan is secured. Lenders like to see at least two years of employment history to prove that you are financially stable enough to obtain a mortgage. Changing employers before purchasing real estate in Tampa (or elsewhere) can prevent you from getting the greatest mortgage rate.
Not Knowing What to Look For
Don’t just rely on your neighbor’s recommendation when choosing a lender. Consider other factors like rates, location, and whether you have other banking products with them. Being brand loyal can sometimes be costly, so it’s worth checking out new options as well.
Waiting Too Long to Take Action After Seeing a Good Rate
It’s not advised to make a big purchasing decision too hastily. However, if you discover a rate that appeals to you, it is critical that you are ready to act quickly and decisively. Interest rates rise and fall over time; they are anticipated to rise throughout 2022. In order to take advantage of a great deal, you should act now before the opportunity disappears.
Taking on Too Much New Debt With Credit Cards
It can be easy to want to put everything on a credit card when someone is trying to save up for a down payment or closing costs, but this could lead to dire consequences like being charged more interest or not getting approved for the loan at all.
Up to 30% of an individual’s FICO credit score is attributed to their credit utilization. This term refers to the amount of outstanding debt an individual has in comparison to how much available credit they have. Therefore, if someone has $1500 worth of debt on a credit card with $10,000 in overall available credit, their utilization would be 15%.
In order to keep one’s score high during the months leading up to a home purchase, it is best for that person to curb their spending habits so as not to rack up more debt and therefore maintain low utilization rates.
Not Saving Cash for Closing Cost
Your down payment is not the only cost you’ll have to pay when you find your home. You may also have an origination fee, title insurance, homeowners’ association dues, taxes, and other expenses at the closing. If you have an FHA loan, then you may also have to make a mortgage insurance payment upfront.
Although you can ask the seller to pay some of these charges, there are often other fees that come up that you will have to take care of on your own. This is especially true when trying to buy a house in Tampa, FL.