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"10 Biggest Mistakes Borrowers Make Before Applying For a Home Loan"

Do you have a Real Estate question? Wondering about financing a property, personal finance, improving your credit , managing your debts, buying, selling, or real estate investment? Send your inquiry to The Mortgage Guru.

Article: "10 Biggest Mortgage Mistakes People Make Before Refinancing And How To Avoid Them"
By Andre Plessis

"10 Biggest Mistakes Borrowers Make Before Applying For a Home Loan"

Applying for a home loan can be a daunting experience. It’s not enough that you are agreeing to take on the biggest debt of your life. You are also confronted with piles of complicated paperwork, fees and a tidal wave of terms, from rates, loan term to title insurance, whose meaning is fuzzy at best. In this confusing and pressure-filled atmosphere, it’s easy to make some mistakes.

"Here Are 10 Major Mistakes Borrowers do Before Applying For a Home Loan And What You Can do to Prevent Them"

1. Do Not Make Any BIG Purchase 90-Days Prior to Applying For a Home Loan.

	DO NOT APPLY FOR A NEW CAR LOAN
	DO NOT OPEN FOR A NEW LINE OF CREDIT
	DO NOT APPLY FOR NEW CREDIT CARDS
	NO NEW CREDIT

All of the above will affect your ability to get a home loan: if you increase your debt it will increase your Debt-To-Income ration which should stay bellow 50%. A significant debt such as a $25,000 auto loan will look bad to the mortgage lender’s credit scoring systems. Plus, the underwriter won’t want to see you adding a couple of hundred dollars per month to your monthly expenses.

Generally, as a rule of thumb, you want your total debt obligation to be no more than 36 percent of your gross monthly income. You certainly don’t want to load up on consumer debt if you’re anticipating purchasing or refinancing a home and you’re unsure of what your mortgage payment is going to be and if you think you’re within the range of exceeding that 36 percent requirement.

2. Not Paying Your Mortgage On Time. The lender will review your last 2 months mortgage payment history, along with your credit report. Any late payment will affect your ability to get a loan. If something has to be missed, miss the credit card payment first, followed by the payment on any installment loan you might have and finally, the payment for an existing mortgage. That’s because credit scoring systems look at the performance of similar loans first when deciding what type of score to assign. It will give the most weight to the performance of another mortgage, for example, then the performance of something like an auto loan, which features fixed payments and a fixed rate the way many mortgages do.

3. Not Paying On Your Old Loan Until You Close On The New One. A lender or broker may tell you that once you apply for your new loan, you can stop paying on the old one. That is wrong! If you don’t keep current on the old loan, the old lender may start reporting you to the credit bureaus as being late on your payments. If it takes a long time to close, you could end up with a 30-day or 60-day late payment blemish on your record. The new lender could then turn around and use that as justification to change your loan program or increase your rate.

4. Find Out How Long Your Rate Lock is good for and whether it will definitely extend long enough to get you through closing. One of the main reasons borrowers end up paying more for their loans is that the brokers don’t lock in their rates for a long enough period. In a busy lending market, appraisers, title companies, underwriting departments and other staff who help move loans toward closing get backed up. A borrower who gets a rate lock that only lasts 15 days may not be able to close in that amount of time. If it goes over the 15 day, the rate lock expires the broker has to re-lock the interest loan rates just before closing at whatever current market rates are. That is how borrowers end up paying more.

5. Not Getting a Written Good-Faith Estimate (GFE) of Closing Costs, or a Truth-in-Lending (TIL) Statement. Your mortgage company is required to provide you with a written GFE of closing costs, and a TIL, within 3 working days of receiving the application.

6. Paying For an Appraisal When You Think That The House May Appraise Too Low. Ask your loan officer to check with an appraiser to provide you with a range of possible values or comparisons. Do not waste your money on a full appraisal if you are doubtful about the value of your house. In some cases if your credit score is too low and that your loan to value (LTV) is too high and you cannot qualify for a loan, then it will be a waste of money to order an appraisal.

7. Not Fixing Your Credit. Before you even think about applying for a mortgage, obtain copies of your credit report and your FICO credit score. Your FICO score is the three-digit number that’s used in 75% of mortgage-lending decisions. You can order your FICO score on the Web for a fee of $12.95, which includes a copy of your credit report. Doing this at least six months prior to applying for a home loan should give you plenty of time to challenge any errors on your report and ensure that they’re removed by the time you’re ready to apply for a loan. You can also see the legitimate factors that are hurting your score and do something about them, such as paying off an overdue bill or paying down credit card debt.

Not everyone gets the best rates. To get today’s best rates, you have to qualify. Therefore, if you have less-than-perfect credit, you may want to improve your credit standing before you try to refinance. In addition, to get the best rates, you’ll need to keep your borrowing to less than 80% of the value of your home. The Lower the LTV, the lower rate you will get.

8. Refinancing With a Pre-Payment Penalty. Do not refinance if you have a pre-payment penalty on your loan because it may cost you THOUSANDS OF DOLLARS in penalty. The typical pre-payment penalty is 6 months’ interest on 80% of the balance. For a quick estimate, multiply the monthly interest payment by six (6).

9. Do You Have Too Many Credit Cards? As a general rule, it’s not a good idea to close your old credit card accounts as that can adversely affect your credit score, however, having too many open accounts, even if you’re not using all of the accounts, can lower your score as well. Make sure you are making all of your payments on time for at least six months before shopping for a mortgage. Late payments hurt your credit score. Pay down the balances on your credit cards and close any unused accounts.

10. Giving Away Your Social Security Number to Everybody Who Asks For it. Too many credit inquiries can damage your credit score. Remember that you are dealing for the most part with 90% of irresponsible sales people who will keep asking for your social security number over the phone till you finally give up. Each time your credit is pulled, it brings down your credit score just a little. If you have too many inquiries, it could keep you from refinancing your mortgage loan with the lowest rate possible. In some cases, if your credit score is already very low and your Loan To Value (LTV) high they you won’t even be able to refinance. It might be a great idea to invest $39.95 in a tri merge credit report and give it to the mortgage brokers. Protect your credit by not allowing creditors to access your credit records.

I hope These 10 Tips Will Help YOU Better Prepare Yourself When You Need To Apply For a Home Loan.

Andre Plessis

Andre Plessis
"The Mortgage Guru"
"A Mortgage Professional whose primary goal is to provide the expertise, guidance and skills necessary to obtain the best mortgage to meet your personal needs".
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P.S. If you are at all intimidated or unsure about the mortgage process if you don’t understand how to evaluate your options in getting a mortgage loan our 15 key questions will help you feel comfortable that you are making the best decisions. Also if you are in the process of refinancing your home with anyone, CALL ME and I will let you know if you are being offered the best loan option based on market conditions and your financial situation.

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