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5 Blunders That Can Cost You Approval on Your Home Mortgage
Fernando Filipe
The Homeowner Affordability and Stability Plan recently initiated under the Obama administration will provide millions of people with the opportunity to obtain financing which will allow them to keep their homes. For people currently behind on their mortgage payments, there are provisions in the plan that are designed to help many who are already in or potentially face the threat of foreclosure. However, just applying for a special home loan program doesn't necessarily mean you'll automatically be approved.
Most Americans know that they should pay their bills on time to help their credit score, but there are many other factors that can dramatically affect your ability to get a loan. Let's take a look at the 5 most common credit mistakes:
1. Taking it to the limit
Repayment ability is the main factor that lenders are looking at, which is essentially your debt-to-income ratio. If you have a small amount of debt compared to your income, you're in a much better position to pay off what you owe (quickly). Before you apply for a home loan, try to avoid charging a lot on your credit cards, so that your balance stays low. If you carry a balance month-to-month, try to pay them down as much as possible.
2. Financing major purchases before applying for a home loan
Countless people inevitably 'kill the deal' by purchasing a car or taking out a big loan from a finance company or their credit union right before they apply for a home loan. Similar to running up credit card debt, this additional debt can make the difference between getting approved or denied. If at all possible, wait until after your home loan has funded before financing other purchases. Believe it or not, many lenders will run your credit again even after they have approved your loan to find out if you have since applied for more credit. If you are purchasing a home, you will want to wait until the day that your loan has actually closed. If you are refinancing a primary residence, there is a 3-day rescission (cancellation) period, even after you have signed the loan papers before your loan has funded.
3. Putting it off until the last minute
I know it's not something to look forward to, but you should start getting ready for a refinance at least a year in advance of when your ARM (adjustable rate mortgage) adjusts. Some people will wait until crunch time - 2-3 months out - before even talking to their bank. This really reduces the number of options you'll have.
4. Cleaning up your old debts
If you've had bad debt in your past, it would seem like a responsible idea to clean it off your record before applying for a big purchase. In actuality, this hurts your credit score because it looks like that debt is much more recent in your credit history. Avoid paying these off until after your mortgage closes, or pay them off at least a year in advance of applying for a home loan.
5. Signing up for credit help
Many debt management services advise people to do just the opposite of what they should do in order to qualify for home financing such as closing out accounts in good standing. But these actions often cause their clients credit scores to decline. Since having a higher credit score is very important, especially in today's market, you want to make sure not to engage in practices that will bring your score down. Also, many lenders don't look favorably at borrowers who have signed up with these services. It says that you are having trouble managing your finances which is a red flag to lenders.
To qualify for a certain type of home loan under the Homeowner Stability Initiative, you might have to sign up for HUD-certified debt counseling program, but otherwise you should stay away from credit counseling before applying for a home loan. If you really have a spending problem, a better strategy is to put your credit cards where they aren't easily accessible to you (like a safe deposit box), or even cut them up. Keep the accounts open, and continue to pay down your balances and make your payments on time.
By avoiding these mistakes, you can help boost your credit score enough to qualify for lower rates, bigger loans, or both!
About the Author:
Author: Robert Cardihan is a local expert on the Sacramento home mortgage market. Download his free, mortgage advice e-book for first-time home buyers by clicking Free Mortgage Loan Tips.
Get all the information and photos:: http://mortgagewide.info/5-blunders-that-can-cost-you-approval-on-your-home-mortgage/
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