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Applying for a Mortgage: Mistakes to Avoid Making at All Costs

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When it comes to mortgages, there’s no room for mistakes. It’s a 15 or 30 year loan, after all. Here are some of the most common screwups new homeowners make and how to avoid them.

You Go On A Spending Spree

If you’re buying a home, the last thing you want to do is go on a spending spree just before you apply for a loan. Why? Because, charging up your credit cards will negatively affect your debt to income ratio. And, this is a key measure of financial strength.

Banks look at the amount of debt you’re carrying, relative to your income, before they decide on a loan. If you suddenly increase your debt load, the lender might think one of two things:

  • You’re financially irresponsible.
  • You don’t have the ability to repay the loan.

So, keep a lid on spending – at least until after you have completed the purchase and closed on the house.

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You Don’t Get Documentation In On Time

The mortgage loan application process can be a complicated one. If you take too long getting information to the bank, it could cause your loan to be declined. Then, you’ve got to start all over again. Your loan officer needs to have everything in-hand within 30 days. If that doesn’t happen, the process starts over. But, some banks won’t be willing to work with you a second time around if you can’t get paperwork in on time. That, in and of itself, might indicate that you won’t be able or willing to repay your loan on time.

You’re Not Honest About Your Credit History

Your loan officer is going to ask you about your credit history, then run a report to confirm. If you lie about your credit history, it’s going to come up. So, it’s just not worth it. And, you’re not going to get your loan. You’ll be embarrassed.

We’ve all made mistakes in the past. Be honest about them, and your loan officer might be willing to work with you. If you’re working with a good real estate agent, you can almost certainly get help with the loan application and qualification process.

You Buy Too Much House

Committing to too much house is a common mistake. People want to own large homes these days for some reason. And, they’re willing to get in over their heads to do it. But, if you send too much of your monthly income to the bank, what will you have left for yourself?

How will you replace an old car, save money for retirement, or build a college savings for your kids? You won’t be able to. Sure, you could take out more loans, but you’re only adding to your debt. Plus, you have to qualify for a second home loan, and that generates more fees and closing costs.

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You Don’t Factor In The True Cost Of Ownership

Many homeowners do not factor in the true cost of homeownership. That is, they forget to add in all the costs associated with maintenance and repairs. Each year, you need to budget at least 1 to 2 percent of your home’s purchase price for routine maintenance.

Some years, you won’t spend this. That’s good. You’ll need the reserve in other years when costs are higher than average.

You Don’t Shop Around

Check out loan rates in your community, and then hop online and see what prevailing rates are across the country. Never pay more than you have to.

You Don’t Pay Attention To The APR

Some lenders advertise a low interest rate because they want you to buy into their loan program. What they don’t tell you is that these rates do not represent all of the costs of the loan. There can also be other fees attached to the loan like an origination fee, closing costs, and even application and title fees.

So, even if you get a 3 percent APR, you could end up paying 3.5 or even 4 percent when it’s all said and done. Sometimes, the numbers are really close and it’s difficult to tell what’s really happening during the loan app process.

For example, let’s say your lender offers you two loans. The first loan is 4.05 percent with a 1 percent origination fee and $800 in other miscellaneous fees. The second offer is 3.85 percent with 2 points added on and a 1 percent origination fee and $1,500 in closing costs.

The first loan has a total cost of 4.199 percent while the second has a cost of 4.215 percent. What happened?

Even though you had to bring more money to the second deal, the loan costs more. It should be the other way around, right? Not so. The points are what “got” you.

So, always pay attention to all of the fees and question everything.

 

Bill Beazley has been building new homes in the Augusta, Georgia, area since 1976. Bill Beazley is past-president of both the Builders Association of Metro Augusta and the Home Builders Association of Georgia. He has spent his entire career developing neighborhoods, plans and quality products that will be appreciated by the most discriminating buyer. Founded in 1986, his locally owned-and-operated real estate firm was built to serve all of the Augusta, Georgia metro area with a conveniently-located sales office in Columbia County. They specialize in all aspects of Real Estate marketing including Resale, New Homes, Lots/Acreage and Commercial/Investment properties. Over the past three decades, their commitment to professionalism, personalized customer service, and results have made them the CSRAs preferred real estate company.

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