May 21, 2021
When you're getting ready to apply for a mortgage, you want to make sure to have your credit as flawless as possible. That way, you'll have the best chance to get approved for a home loan. Plus, you have a better chance of getting a lower interest rate. Here are four mistakes smart homebuyers avoid when applying for a mortgage.
1. Not Knowing What's on Your Credit Report
Regularly checking your credit is essential. When you do that, you'll know the type of information a lender will see when you apply for a mortgage. Visit annualcreditreport.com to get a free copy of your credit report. See what the three major credit bureaus — Equifax, Experian, and TransUnion — are reporting.
Being informed helps you identify any errors that need correcting before applying for a home loan. And knowing your credit score for home buying avoids surprises.
It's also a smart idea to clean up any potential negative marks on your credit report, if possible. For instance, if you have credit card debt and can pay down some of it, do. That can reduce your credit utilization (the amount of credit you're using compared to your available credit) and help your score.
2. Waiting Until the Last Minute to Get Everything Together
Applying for a mortgage requires having your documents in order. The more organized you are, the smoother the process will go. Gather income documentation. That includes W2s, taxes, bank statements, retirement, and investment information. It's smart to have both hard and computer copies.
And most importantly, be ready and willing to give your loan officer any data they need quickly. For example, they may require updated bank statements. Or they might ask you to resubmit something again. Be flexible. As you move into the process further, the underwriter may ask for written explanations for certain things like income fluctuations or late payments.
3. Not Getting Pre-Approved
Getting prequalified or pre-approved for a mortgage is a great way to ensure you're ready when you need to put an offer on a home. When you make an offer, you'll likely need to provide documentation that you're able to pay the amount you're offering. Showing you can afford the home in question from a legitimate lender is especially vital when dealing with a competitive market.
Additionally, when your lender has reviewed your income, assets, debts, and credit, they can give you a good idea of what you might be able to borrow. It's so important to know how much mortgage you can afford. That way, you're not shopping for homes out of your price range. And on the flip side — you know your maximum borrowing power.
4. Applying for Credit Before Closing
The number one way to sidetrack getting your mortgage is to apply for more credit before your loan closes. So many borrowers get excited with the prospect of moving into their new home that they run out and buy new furniture and use a credit card or in-house financing. Or not realizing they shouldn't — they may buy a new vehicle. A large car payment or even additional small credit card payment could make it where you don't qualify.
This information is crucial if you already have a lot of debt, or your income isn't high. Before you apply for credit, use savings, or rack up your credit cards — check with your loan officer. In most cases, they will tell you to wait until after your loan closes.
We hope explaining these four credit mistakes to avoid has been helpful. Follow these, and the loan process will be much smoother and less stressful. Remember, when it's time to apply for a mortgage — we're here to help.
To learn more about PenFed mortgages or what option is right for you:
- Call 866-386-7254
- Visit the Mortgage Center