First, let’s talk about some things that you definitely do not want to do. It would be very easy to get overwhelmed with such a large decision and overlook some very important things.
- Not preparing. Don’t apply for a mortgage without shopping different lenders, having all of your paperwork together, and making sure your credit report is alright.
- Getting the wrong loan. There are so many different types of loans and it is very important that you get the one that fits your needs. Some lenders get used to doing the same loans and try to push everyone into the same product. Don’t let this happen to you. If you plan to be in the home for just a few years, you may want to go with an adjustable rate mortgage, taking advantage of the attractive initial rate. Perhaps you plan to relocate in a couple years or move up to a larger house. However, if you plan to live in this home for a long time, you may be better served with a fixed rate loan. You will pay a higher rate, but you won’t have to worry about large payment increases that can happen as rates increase. We will discuss the different types of loans in more detail below.
- Not getting your rate locked-in on paper. It is most important to get your rates lock-in rate in writing. Your mortgage broker or representative may tell you that your rate is locked-in, but if they make a mistake or something isn’t handled properly, you could show up at closing and discover that they have made the loan at the current rate, which could be much higher. If you do not have written proof that you were assured that rate, you are without recourse. Request a statement detailing the interest rate, the length of time the rate is locked-in, and all other details of the loan that you are agreeing to. This is common practice. If the lender refuses to give you this in writing it is time to take your business elsewhere.
- Mistaking Pre-Qualification for Pre-Approval. When you contact a lender, they will do a quick initial credit check using the information that you provide. They are not giving you a firm committment that you would be approved for the amount that they are stating that you would qualify for. A pre-approval is when the lender has thoroughly investigated the borrower’s credit, verified employment history, verified downpayment funds, etc. If you get pre-approved, rather than pre-qualified, you will save time later and, perhaps, save yourself some disappointment if you happen to find the perfect home, only to find out that you can’t get approved for the loan.
- Taking on more than you can bear. The worst thing that can happen is that you get into the house of your dreams, then find after a short time that you are strapped and unable to make the payments. The bank should not lend you more than you can bear, should they? Sometimes, in an effort, to get a mortgage approved, a lender might “tickle” the numbers a little bit to get you into the house. They can tell that you really want the house and the numbers are so close, they just want to be nice and help you out a little (or maybe they just want to make the mortgage because they need to make their boat payment). Think rationally, and make sure that you are not biting off more than you can chew.
The next 4 items are mistakes “NOT” to make between mortgage application and closing.
- Do not pile on the debts. It is very unwise to open any new credit cards, loans, etc. during the mortgage process. The lender is very likely to verify you financial situation just prior to closing to make sure that there have not been any changes. If you have taken on additional debt, it is quite probable that they will refuse to make the loan.
- Don’t change jobs. The lender will refuse to close on your mortgage if you have made any kind of “material change” since your pre-approval. If you are changing jobs within the same profession, you should contact the lender, give them all of the details and it me not be a problem. But if you are changing professions or going from working for someone else to a self-employment situation, there will be trouble. Try to stay put until the loan closes.
- Do not pack all of your important papers. From the time that you apply for the mortgage until you walk away from the closing table, you will be asked to provide lots of information and paperwork to the lender. You will probably be packing and making ready for your move, but you don’t want to pack anything that might be needed prior to the closing, for example: pay stubs, bank statements, tax returns, etc. You want to have everything that may be requested from you readily available so as not to hold up the mortgage process in any way. Keep everything in a briefcase or someplace where they can be easily accessible.
- No credit report errors. This item has been repeatedly addressed on this website, but it is so important and so time consuming, should there be a need to make repairs to your credit report. It is also very common to find mistakes, so, ONE MORE TIME, contact one of the major credit reporting agencies: Experian,, Equifax, or Trans Union, and make sure that your report is accurate and any negative items can be addressed.