One of the biggest financial commitments you will ever make is a home purchase. In fact, this is such a huge commitment that you will probably need to borrow money in order to make it happen. And, because you are borrowing such a large amount of money from the lender, you will be required to fill out a mortgage application.
A mortgage loan application is very involved and complex, and usually requires a great deal of documentation to go with it. If you make mistakes with your mortgage application, it might be rejected, and then you lose time as you try to fix the mistake. In some cases, the lender requires you to start from the beginning when a major mistake causes problems with your application.
If you want to improve the chances of a mortgage application approval, avoid the following 6 mistakes:
1. Lying on Your Mortgage Application
It’s tempting to fudge the numbers a bit on your mortgage application in order to make it look like you earn more money than you do, or to downplay your monthly payments on other debt obligations. Don’t do this. You need to be completely honest — especially since you will be required to provide documentation of your debt and income.
2. Failure to Understand the Process
Too often, borrowers don’t fully understand the process before they begin. This can lead to unpleasant surprises, and confusion about what is needed, as well as the timeline involved with a mortgage. Ask questions, make sure you understand what documentation is needed, and that you understand terms and conditions before you sign on the dotted line.
3. Making a Large Purchase Before Applying
One of the red flags that goes up when you are applying for a mortgage is when you have recently made a large purchase. If you know that you will be house hunting and applying for a mortgage, hold off on large purchases. You need to make sure that you can show that you have adequate assets for the down payment and other costs.
4. Borrowing Money for the Down Payment
Your lender will ask you how you will get the money for your down payment. If you can show that you have adequate assets in your bank accounts, investment accounts, and retirement accounts, you are more likely to be approved. If you have to borrow, though, you might not be approved. Lenders want to see that you are financially independent. You can use a gift from a close relative as a down payment, but it can in no way be provided with the assumption that you will repay the money.
5. Neglecting a Home Inspection
Arranging for a home inspection can add to the time you spend squaring everything away. However, you need the home inspection in many cases. The lender wants to make sure that your home is structurally sound, and that it doesn’t have other problems that might cause you to walk away partway through the mortgage term. Another part of the mortgage application process is the appraisal. Don’t skip this step, either.
6. Using Your Credit Cards Before the Closing Date
So, your home mortgage application is turned in and you’ve been approved. Now you just have to wait a few weeks for the closing date and for everything to get squared away. This is the time when many borrowers make a fatal mistake: They start using their credit cards heavily.
Often, a lender will do one last check of your credit prior to closing. If there is a great deal of activity on your credit cards, the lender might decide not to go through with it after all, and your funding will fall through, putting you back at square one.
Because so much money is involved, it’s vital that you pay attention to your situation, and stay away from common mortgage application mistakes if you want to successfully close on your home.