You've been discussing the advantages of homeownership with your friends and family, and you're getting ready to start looking for houses. Along with that, of course, you'll also be applying for a mortgage. You've probably already reviewed your credit report and set aside some money for the earnest money deposit and down payment. Right?
But even if you've done your homework and you think you're ready to apply for a mortgage, there are still some common mistakes that potential homeowners make. Some of these mistakes can be easily avoided, while others may not be so obvious.
Common Mortgage Application Mistakes
Paying off Debt Right Before Applying
It's a natural reaction: you're running your credit and come upon an old balance you forgot about. If you have the cash on hand to pay off your debt, you'll almost certainly wait until after you've acquired a mortgage. Any modifications in the debt record will show as a new activity, potentially lowering your credit score.
Instead of looking at everything right before applying for a loan, verify your credit reports from all three major reporting agencies six months to a year before making an application. As a result, the negative mark will not harm you, and the current payment will not cause an unexpected score drop.
Making Another Major Credit Decision
It's not a good idea to open a new zero-interest credit card account or acquire a new vehicle on credit during the period when you're looking for mortgage loans in Florida. New credit card applications are always proving to be a win-win situation for us, but the new inquiry might be a red flag for lenders and cause a minor drop in your credit score.
If your automobile is lost or stolen, see if you can obtain another without taking out a car loan. As a new credit card, this will show up on your credit reports as a new inquiry. It will also lower your debt-to-income ratio. If at all feasible, try carpooling or taking public transportation while you work out the terms of your mortgage loan.
Changing Or Quitting Your Job Before Closing
Your employment and income are two of the most important criteria for obtaining a mortgage.
Underwriters examine several criteria to evaluate your employment and income: the time you've worked, the amount you earn, the documentation for that money, and your stability.
Ideally, lenders want to see consistency for the previous 24 months. Even if you obtain a better job with more pay, quitting your employment during the application process might cause delays.
Your income influences whether you will be accepted for a loan. If your earnings change, the lender must reconsider your mortgage application.
You will need to submit an offer letter for the new company, which occasionally works. Also, before closing the loan, some lenders want to pay statements from your new employment for 30 days. This might cause your closing to be delayed.
If you plan to change jobs before or during the mortgage process, you must alert your lender as soon as possible.
Not Understanding The Annual Percentage Rate (APR)
You've undoubtedly come across two different percentages while looking for interest rates online: the mortgage rate and the annual percentage rate (APR).
It's critical to grasp the distinction.
Lenders will always advertise the mortgage rate, the interest rate you'll pay on your loan. However, the mortgage rate doesn't always represent a borrower's total interest costs.
Most people focus on the mortgage rate when considering a new loan. This is how your monthly payments are determined, so it's important.
However, the APR includes the expenditures involved in obtaining the mortgage.
Costs such as points, origination, and appraisal fees are rolled into the APR. As a result, the APR is essentially the loan's actual cost. So which loan is less expensive?
- 3.875% rate, 4.33% APR
- 4.0% rate, 4.05% APR
You may take the 3.875% mortgage with a higher APR in some situations because the fees are lower.
However, depending on the lender's fee structure, the higher rate and lower APR might be better.
A lower mortgage rate is almost always preferable to a higher one, but you should not just focus on that number. Pay attention to the APR as well, which will give you a truer understanding of your loan's cost.
Before deciding, shop around and compare the mortgage rate and APR from different lenders.
Not Getting Documentation To Your Lender On Time
Mortgage applications may be time-consuming. Therefore, your lender will want numerous documentation and information items before and throughout the application process.
It's frustrating to be asked for documentation that you've already supplied.
It's important to remember that, from time to time, the documentation you initially supplied may necessitate the need for additional goods. A frequent example is when bank statements are given.
It's not unusual for homeowners to glance at the front pages. You'll need to submit the back side of your bank statements are double-sided. Even those pages with only a few lines of fine print, or even blank space, will be necessary.
Your paperwork, particularly pay stubs and bank statements, will become invalid in a few years.
You may believe the lender is requesting the documents you've already supplied. However, they could simply be asking for your most recent and up-to-date paperwork. When your lender asks for paperwork, respond promptly to minimize any delays.
Avoid these common mistakes when ready to apply for a Florida mortgage loan. Be mindful of your employment situation and how it might change, understand the difference between mortgage rate and APR, and stay on top of documentation requests from your lender. Taking these precautions will help ensure a smooth application process.