DO’s DON’Ts & APPLYING FOR A MORTGAGE

Getting a mortgage is a complex process and perhaps one of the most significant events of our lives, at least in financial terms. 

Here are five potential pitfalls to avoid:

1. Making major purchases during the loan and home buying process: Items like furniture, appliances, and even that new car for the garage should wait until after the purchase is complete.

2. Applying for new credit alongside the mortgage: Wait before applying for new credit, even if you’re “pre-approved.” Shifting around your credit, like opening or closing a credit card or transferring balances, can hurt your FICO score & mortgage application because it skews your credit utilization ratio.

3. Taking out new loans: Avoid taking out any new loans for cars, boats, or other expensive items. It is also a good idea to avoid increasing credit card debt during the loan process.

4. Changing your credit and banking behavior: Paying off loans, credit cards, or collections are not always beneficial during the loan process. Similarly, speak with your lender before you close or open any asset accounts, transfer funds between accounts, or deposit any monies outside of your automated payroll deposits, particularly cash or sale of personal property. Many guidelines require substantial documentation as to the source of these deposits.

5. Job hopping: A key to mortgage approval is steady employment and income. If you are thinking of a job or career change, wait until you’ve closed your mortgagefirst.

When it comes to the “Do’s” of applying for a home mortgage, remember that consistency and stability are key factors in your loan approval.

Here are five ways to be better prepared:

1. Do get pre-approved: Good preparation is the key to a good mortgage. With pre-approval, you will get a written commitment from the lender that will show home sellers that you’re serious about the purchase.

2. Do stay current and consistent: It is important to continue making rent/ mortgage payments on time and to stay current on all existing credit cards and loans. Keep the same bank accounts and insurance company, and continue to use credit as usual (as long as “usual” means paying on time). Be aware that a credit report will be pulled just prior to closing.

3. Do stay organized: Keep originals or be able to access on your employer/ bank websites all pay-stubs, bank statements, and other important financial documents. If applicable, you will need to provide all documentation for the sale of your current home, including sales contract, closing statement, and employer relocation/buy-out program.

4. Do be open and honest: Any information you put down on a mortgage application form 401(k)s to IRAs, to outstanding debts, even bankruptcy filings can all be verified right down to the decimal point.

5. Do know that the source matters: Your earnest money deposit will need to be made from your own personal bank account or acceptable gift funds. This will present a very di cult problem if not managed properly in the beginning. Notify your lender if you plan to receive gift funds for closing. Gift funds are acceptable only if certain criteria are met. Advances from credit cards for down payment/closing costs are never acceptable. 

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