If you have never applied for a mortgage before or if you are a first time home buyer, there are some things that you need, and should, know so that you don’t have surprises when you meet your lender for your mortgage pre-approval or even your refinance. Some of this will be common sense and some of this will surprise you but all of these will help you prepare yourself to buy a home and get your mortgage or refinance your existing home.
It’s easy to get caught up online shopping for homes and dreaming of when you can buy one. Whether your credit is less-than-perfect or perfect, these tips should help you. And of course, partner yourself with a solid mortgage lender so that they can guide you as well. They will be your best resource to help get your credit up if needed. Many first time home buyers usually avoid speaking with a mortgage person first because they assume many things. I cannot stress enough for you to speak with a lender first to find out what needs or doesn’t need to be done prior to a mortgage pre-approval or refinance. Your real estate agent can usually provide the names and phone numbers of a few trusted mortgage lenders.
STAY CURRENT ON YOUR BILLS:
This one may seem like common sense, but sometimes people think they can be late a couple of times or skip some payments and this won’t impact them because it may have been last year. If you go beyond the allowable grace period, this will affect your credit score.
Some buyers may not have many credit cards or lines of credit open which means they do not have a big credit history and that this will not allow them to apply for a mortgage. This is not the case, Lenders can use utility company payments, cell phone payments, rent payments, etc., but you can not have a history of being late. These other sources of credit can be just as important to you when applying for a mortgage so they are just as important as paying credit cards, student loans, etc.
KEEP YOUR JOB
Obviously you need to have a job to apply for anything credit oriented! What I mean by keep your job is that sometimes buyers are looking to change careers or jobs. This is bad if you are applying for a mortgage or looking to buy a home. Lenders like to see stability and will check with your employer throughout the loan process to make sure you are still employed. Lenders will look for 2 years at a job or similar job. Meaning, if you changed jobs last year but it was the same type of job, you should be okay. You cannot go from being an engineer last year to a coffee barista this year. These are 2 completely different careers! So if you have plans to buy a home, try not to change jobs and especially do not change careers!
DON’T ADD CREDIT CARDS OR LOANS
If you have already applied for a mortgage and are in the process of housing hunting or have an offer in on a home, DO NOT GO OUT AND ADD ANY DEBT to your credit history or MAKE ANY BIG PURCHASES using a loan or credit card. Do not buy a car, co-sign a loan, open a credit card, etc. Your mortgage pre-approval was given to you based on your existing income and debt. So if you go out and add a credit card card or purchase furniture using an existing credit card, you may have ruined your chance at buying your home.
The first thing a buyer wants to do after their offer is accepted is to start shopping for appliances, furniture, or other items. DO NOT DO IT.
DO NOT MAKE BIG DEPOSITS INTO YOUR ACCOUNTS
Maybe your parents are lending you money for a home or you’ve been saving cash at your home and you want to deposit that money into your account because you are now ready to make an offer on a home. STOP! CHECK WITH YOUR LENDER FIRST. All large deposits must be verified by your lender so unless you have the paperwork that substantiates the exact amount being deposited. Do not deposit the money. You must speak with your lender first as to how best to handle this situation. There is a reason for this madness and it is to prevent money laundering, fraud and other reasons. So if you are borrowering from a 401K or mom and dad, you will need the money paper trail. Meaning Mom and Dad must provide proof they had the money in their bank account, show the withdrawal and you must show the deposit. And if Mom and Dad had large deposits in their account, then they will also have to explain it.
It is extremely important to keep your lender informed of anything happening or potentially changing in your credit profile. A mortgage lender is not there to judge you, they are there to assist you to the end goal and they definitely will work with you on everything they can.
REPORT ANY CHILD SUPPORT, WAGE GARNISHMENTS, PAST FORECLOSURE/SHORT SALES
When you are doing the application for the mortgage, some people think they can omit information or simply forget certain things like child support or wage garnishments because these are taken directly out of your paycheck so it’s a set-it-and-forget-it mindset. The mortgage application will ask about certain events, payments, debt, etc. You MUST disclose everything. It’s better to over-disclose than under-disclose. All the information you fail to enter will eventually be found out anyway and that could seriously derail any home buying or refinancing plans you have. The mortgage lender is not an enemy but a friend. The more they know, the more they can help you. Lenders use a much different credit reporting system than car dealers and credit card companies so just because you were approved for a car loan last year – does not mean your credit is sufficient for a mortgage.
Never EVER knowingly falsify a mortgage application. This is fraud and would be treated as such. It’s very important to always be truthful during the application process.
CONSIDER THE PROPERTY TAXES and CONDO FEES
When you are looking at homes, make sure you find the correct property taxes. The reason you want to do this is because in certain towns like Norfolk, Sharon, Holliston and other towns, have extremely high property taxes and some condos have high condo fees and your lender will use this information when determining if you can buy a home. The property taxes, along with condo fees, are factored into your debt to income. So if your pre-approval is maxed out at $350,000 and the lender used $4000.00 per year in taxes and you find a home in Norfolk MA that is priced at $350,000 but the property taxes are $7500.00 you may not get approved for the loan. The same goes with condo fees. Many buyers will start out looking for homes and for one reason or another they may decide that buying a condo is their choice. Well if you have a mortgage pre-approval for $300,000 for a single family, you can count on the fact that your mortgage pre-approval amount will be reduced to account for a condo. You may only qualify to buy a condo at $275,000 instead of $300,000 because the condo fees, taxes, insurance and PMI (if applicable) are factored into your debt to income. So speak with your lender and get a new pre-approval for your condo needs.
In closing, I hope the moral of this post is that you must be in constant contact and communication with your mortgage advisor. Even if you are in doubt, it’s best to confirm it with your lender. You would not want to find your dream home, submit an offer, go through a home inspection, give notice to landlord, only to find out that a simple (or not so simple) oversight stopped you dead in your tracks. Best to err on the side of caution.
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