Ways homebuyers mess up getting a mortgage

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Obtain a mortgage is, by general consensus, the most dangerous part of buying a home. In a recent survey, 42% of homebuyers said they found the mortgage experience “stressful” and 32% found it “complicated”. Even lenders agree that it is often a struggle.

“A lot of things can go wrong,” says Staci Boobsworth, Regional Manager at PNC Mortgage in Pittsburgh.

If you want to buy a house, you have to be vigilant. To give you an idea of ​​the pitfalls, here are six of the most common ways people fail to get a mortgage.

Wait until you can pay a deposit of 20%

A 20% deposit is the golden ratio when applying for a classic mortgage, since it allows you to avoid paying private mortgage insurance (PMI), an additional monthly fee of 0.3% to 1.15% of your total loan amount. But with mortgage rates where they are today, in a nutshell, moo– waiting for this magic 20% could be a huge mistake, because the more time passes, the more mortgage rates and house prices can increase!

All of this means that it can be helpful to discuss your home buying prospects with lenders now. To get a rough number of what you can afford and how your down payment will affect your finances, enter your salary and other numbers in a home accessibility calculator.

Meeting with a single mortgage lender

According to the Consumer Financial Protection Bureau, about half of home buyers in the United States meet with only one mortgage lender before taking out a home loan. But these borrowers could miss out on a great deal. Why? Because lenders’ offers and interest rates vary, and even catch a slightly a lower interest rate can save you a lot of money in the long run.

Indeed, a borrower who takes out a conventional loan at a fixed rate over 30 years can obtain rates that vary by more than half a percent, found the CFPB. So getting an interest rate of 4.0% instead of 4.5% on a fixed mortgage of $ 200,000 over 30 years translates into savings of about $ 60 per month, or $ 3,500 per month. during the first five years.

So, to make sure you get the best deal possible, meet with at least three mortgage lenders. You’ll want to start your research early (ideally, at least 60 days before you start seriously looking at homes). When you meet each lender, get what is called a good faith estimate, which details the terms of the mortgage, including the interest rate and fees, so you can compare the offers.

Be pre-qualified rather than pre-approved

Mortgage prequalification and mortgage pre-approval may look the same, but they are completely different. Prequalification involves a basic overview of a borrower’s ability to secure a loan. You provide a mortgage lender with information about your income, assets, debts and credit, but you do not need to produce any supporting documents. In return, you will get a rough estimate of how much loan you can afford, but this is by no means a guarantee that you will actually get loan approval when you go to buy a home.

Mortgage pre-approval, meanwhile, is a thorough process that involves a lender performing a credit check and verifying your income and assets. Next, an underwriter performs a preliminary review of your financial portfolio and, if all goes well, issues a pre-approval letter, a written commitment to fund up to a certain loan amount.

At the end of the line ? If you’re serious about buying a home, you need to be pre-approved, as many sellers will only accept offers from pre-approved buyers, says Ray rodriguez, Regional Director of Mortgage Sales for New York City at TD Bank. Here is how to start the process of mortgage pre-approval.

Move money

To get pre-approved, you must show that you have enough money in reserve to pay the deposit. (The easiest way to do this is to present your mortgage lender with bank statements.) Nonetheless, your loan must still be underwritten while you are under contract for your loan to be approved. Because the subscriber will check that your finances have stayed the same, the last thing you want to do is move some money while you are in the process of buying a house. Transfer large sums of money or even in your accounts is a huge red flag, says Casey fleming, Mortgage Advisor and Author of The Loan Guide: How to Get the Best Possible Mortgage. “

So if you are under contract for a house, your money should stay put.

Apply for new lines of credit

If you are applying for a new credit card or a credit limit increase a few months before closing, be careful: credit rating up to five points. So don’t let the credit checks add up.

“Worse than the real impact on your credit score is any attempt to borrow Following money all at once ”, says Glenn phillips, CEO of Lake Homes Realty. Translation: Applying for multiple lines of credit while buying a home can trick your mortgage lender into thinking you desperately need the money – a signal that could change your mortgage terms or even get you turned down. completely, even if you have a closing date on the books.

Change job

Mortgage lenders like to see at least two years of consistent income history when they pre-approve a loan. Therefore, changing jobs while you are under contract on a property can create a big problem in the eyes of an insurer.

Your best bet? Try to wait until after you closed your house to change jobs. If you are forced to change before closing, you should immediately alert your loan officer. Depending on the lender, you may simply need to provide a written employment verification from your new employer that shows your employment status and income, says Chashank Shekhar, the founder and CEO of Arcus Lending in San Jose, California.

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