Getting a mortgage can be the most tricky part of buying a home – even lenders agree that it’s often a struggle. That said, there are definitely ways to avoid any potential headaches. Here are three of the most common things people do that mess up getting a mortgage that you’ll want to be sure to avoid doing yourself!
1. Waiting until you can make a 20% down payment
A 20% down payment is the golden ticket when applying for a conventional home loan, since it enables you to avoid paying private mortgage insurance (PMI), an extra monthly fee on your total loan amount. But with mortgage rates at the low levels where they are today, waiting for that magic 20% could be a huge mistake, since the more time that passes, the higher mortgage rates and home prices may go! All that to say, it may be worth discussing your home-buying options with lenders right now.
2. Moving money around
To get pre-approved, you must show you have enough cash in reserves to afford the down payment. That said, your loan still needs to go through a review process called underwriting while you’re under contract in order for it to be approved. Because the underwriter will check to see that your finances have remained the same, the last thing you want to do is move money around while you’re in the process of buying a house. Shifting large amounts of money out or even into your accounts is a huge red flag from an underwriting perspective, so if you’re under contract for a home, your money should stay put.
3. Applying for new lines of credit
If you apply for a new credit card or request a credit limit increase a few months before closing, watch out: this can increase your credit, so don’t let the inquiries add up!
Applying for multiple lines of credit while you’re buying a house can make your mortgage lender think that you’re desperate for money—a signal that could change your mortgage terms or even get you denied altogether, even if you’ve got a closing date on the books.
4. Changing jobs
Oftentimes, mortgage lenders like to see at least two years of consistent income history when pre-approving a loan. Consequently, changing jobs while you’re under contract on a property can create a big issue in the eyes of an underwriter.
Your best bet? Try to wait until after you’ve closed on your house to change jobs. If you’re forced to switch before closing, you should alert your loan officer immediately. Depending on the lender, you may simply need to provide a written verification of employment from your new employer that states your job status and income.
