Being a first time home buyer will be one of the biggest life decisions you will make. Homeownership provides people and families a safe place to return to. It is a long-term asset that families can pass onto your children and create a strong financial platform.
Homeowners create connected communities because they are more involved in their schools, more engaged in their neighborhoods and more supportive of local businesses.
Don't let the fear of the unknown deter you from purchasing your new home. If you need help getting a mortgage, finding down payment assistance, improving your credit before you buy or simply the navigation of buying your first home, American Financing is here to answer all questions and guide you through the process.
It's harder to qualify for a mortgage loan these days. New regulations require lenders to verify every aspect of a borrower's financial background, which can be a tedious process. Additionally, most lenders have tightened their underwriting criteria.
As a borrower, you should avoid doing anything that might harm your chances of getting approved for a loan. Here are five things in particular you should avoid before applying for a mortgage.
1. Taking out other loans
Auto, personal, and student loans all have one thing in common. They increase your total debt. As a result, they can also affect your chances of being approved for a new home loan. The amount of debt you currently have carries a lot of weight when lenders working towards approval. Lenders will compare your recurring monthly debts to your gross monthly income. This is known as the debt-to-income ratio, or DTI. It has become one of the most important qualification requirements for borrowers in the current lending environment. So, if you plan to apply for a mortgage in the near future, try to avoid taking out other loans or lines of credit or at the very least, put them off until after you've been approved.
2. Racking up credit card debt
We just talked about the importance of the debt-to-income ratio when applying for a mortgage loan. Credit card balances are included in this calculation as well. Carrying too much credit card debt is one of the most common reasons for mortgage rejection these days. It makes you more of a risk, in the lender's eyes.
3. Missing credit card payments, car payments, etc.
Lenders use your credit score as a risk-assessment tool. A higher score indicates a lower risk for the borrower. And in turn, a lower score indicates a higher risk for the lender. So you want to do everything possible to protect your credit score when shopping for a mortgage loan.
Your payment history accounts for 35% of your overall score -- more than any other single factor. In fact, a single late payment can drop your score by 50 points or more, depending on the circumstances. That being said AVOID missing any payments.
4. Diminishing savings accounts
You will definitely have certain out-of-pocket costs when acquiring a home loan. First, there is the down payment to consider. Unless you're using a VA or USDA home loan (both of which offer 100% financing for borrowers), you will have to make a down payment of some kind. It might be 3.5% for an FHA loan, or 5% to 10% for a Conventional loan.
You'll encounter closing costs as well, and these can amount to thousands of dollars above and beyond the down payment.
Some lenders will want to see additional cash reserves in a bank account, especially if you are viewed as a higher risk borrower for some reason.
Simply put, to improve your chances of qualifying for a mortgage, you should save as much money as possible.
5. Changing jobs, or taking a leave of absence
Mortgage lenders want to see a history of steady employment and income. In most cases, at least two years. Of course, if you receive your income from non-employment sources such as an annuity, this takes away this requirement. But for a typical home buyer, employment is a key qualification item during the mortgage application process.
If you change jobs within the same field, and secure an equal or greater level of income, you might not have any problems. But if you make a major career change, or if your income decreases, there may be some issues during the underwriting process.
There is a lot of information here but to simplify it all:
American Financing is here and ready to help you through the buying process and make everything straightforward. Call us today, (866)750-6551, it takes 10 minutes to get prequalified, or complete the online application.