It’s easy to get caught up in the elation of purchasing a new house, especially if it’s your first time as a homeowner. That sense of accomplishment, the upgrades to your lifestyle and living arrangements, even landing a sweet interest rate on your mortgage payments, are all part of the ups that come with having a home to call your own.
With all of these things to look forward to, it’s understandable to want to swiftly move through a mortgage application as fast as possible. Many times, though, potential homeowners might not realize some of the little things they inadvertently do in a hurry that can actually slow down the mortgage application process to the detriment of being approved for a home loan.
Before applying for a mortgage, consider some of these common missteps and avoidable oversights that could prolong the application review, and even get you declined by a lender.
—1. Failing to get preapproved
Colin Robertson of online publication U.S. News & World Report said it best: “Good preparation is the key to a good mortgage.”
Unfortunately, one of the most fundamental preparatory steps people fail to take is getting preapproved to check if they even qualify for mortgage financing. According to Robertson, mortgage loan preapproval is more conclusive than a basic prequalification because a bank will examine everything from your credit report to your income and assets.
Lew Sichelman of Realtor.com also said that many consumers confuse prequalification with preapproval. In the case of the former, a lender is only making a guess into how large a mortgage loan you might qualify for; in the latter, you’ve been approved based on the facts of your financial history — what you can afford comes down to hard numbers, not estimates. Overlook these differences and you might need to start the application process from square one.
—2. Changing your credit behavior
There’s a misconception that if you pay off all your bills on time, it’s OK to use up a good chunk of your credit. The fact is, using too much credit is bad for your credit score and mortgage approval, since it implies a reliance on borrowing money. That doesn’t look good to the people you want to borrow from.
Indirectly shifting around your credit, like opening or closing a credit card, can also hurt both your FICO score and mortgage application because it skews your credit utilization ratio. The same goes for simply applying for new credit along with your mortgage application.
—3. Blanking out on the “blank pages”
It’s an admirable thing, wanting to save paper and conserve trees and all. But when those empty pages of your mortgage application say “These pages left intentionally blank,” they’re blank for a reason. That doesn’t mean you can skip over them when scanning, faxing or mailing them to a lender, bank or credit union. This simple omission can invalidate your application entirely, or, at the least, hold up the process.
—4. Forgetting to read the fine print
Be careful what you wish for. Overlooking the finer details of a mortgage application could mean getting approved for a mortgage you really don’t want. Being hasty about applying for a sub-par mortgage deal is just a waste of time for you and your lender.
The same can be said about verbal agreements. Your word might be your bond, and a lender’s word might be its bond, but nothing is official until it’s in writing. Gone are the days when a handshake and a promise meant a deal was official. Failing to fill out mortgage documentation means there’s no fine print to read and could indicate a scam above anything else.
—5. Lying
There was a time when you could embellish little things like income, employment or credit score on a mortgage application. No biggie, right? Wrong — in these post-financial crisis days, banks, lenders and the law, leave no stone unturned when it comes to anything financial, right down to the errant typo.
Any information you put down on a mortgage application — from 401(k)s to IRAs, to outstanding debts, even bankruptcy filings — can all be verified right down to the decimal point. Don’t put yourself at risk of committing mortgage fraud. And never, ever lie about your taxes.
Sichelman added never to sign an incomplete mortgage application. Loan officers have been known to fill in missing information — if it’s erroneous or false, guess who’ll get the blame by the authorities? You.
—6. Leaving out the legwork
Applying for a mortgage is a chance to verify some of those personal details we’ve never been sure of. Don’t know if your credit score is 320 or 780? Check out your credit before taking out a mortgage. Forgotten some of your past employment history or haven’t tallied up the exact amount of your outstanding debt? Dig into your records to get the answers. It’ll not only save you and your loan officer the work, but you’ll have the personal satisfaction of acquainting yourself with your own finances.
Following this mortgage application checklist can improve your chances of getting approved more quickly for a low mortgage rate. But the application is just one step in a multifaceted process. Have more mortgage questions? Don’t hesitate to sit down with a loan officer, banker, or a real estate lawyer to learn the ins and outs of mortgages before you apply.
And remember, if you’ve been approved for a mortgage, secured your terms and moved in, the paper trail doesn’t end there, even when you’ve finished paying off your mortgage.
Sichelman said that many people hold “mortgage burning parties,” setting fire to their original mortgage loan documents. He wisely advised not to. Make copies of everything related to your house, and store them in a safe location. Your house and everything associated with it is an asset — letting them go up in smoke could mean lessening your chances of selling your home, or getting approved for a future mortgage.
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