9 Dumb Moves That Kill Hopes of Landing a Great Mortgage

If you are shopping for a home, chances are good that you’ll need a mortgage. Finding the right home loan is crucial to making the homebuying process a financial success.

But fall victim to any of the following mistakes, and you soon could be crying the blues. Following are some dumb mortgage mistakes you should avoid at all costs.

1. Not checking your credit

The first thing lenders will do is check your credit report, so it’s dumb not to know what’s in there before they look at it. Order your credit reports six months to a year before you apply for a mortgage, getting free copies through AnnualCreditReport.com.

Once you’ve got your credit report in hand, make it shine. Dispute any errors with the credit reporting agencies. Settle accounts and, if possible, negotiate removal of negative comments when you do. Pay down as much debt as you can, and pay your bills on time every month. The higher your credit score, the better chance you have of getting both a good loan and a favorable rate.

For tips on what not to do, check out “11 Surprising Ways to Wreck Your Credit Score.”

2. Ignoring your rental history

If you’re currently renting, ignoring your rental history can be a mistake. A friend of mine once applied for a mortgage through the U.S. Department of Agriculture. She had to get a letter of recommendation from her landlord and a year’s worth of bank statements showing she had paid the rent on time before she could be approved. Make sure you are paying your rent on time every month leading up to a mortgage application.

3. Job-hopping

Lenders like to see steady employment and a solid source of income. If you have recently switched career paths — or have a habit of switching jobs every few months — they might see your employment history as a sign you won’t be able to repay your loan.

We’re not saying stick with a job you hate forever, but try and hold out until after you secure a mortgage.

4. Shortchanging your down payment

You’ll need at least 20 percent down to qualify for the many conventional mortgages. Make sure you have it in the bank before you start shopping for a loan.

5. Not getting preapproved

Would you go to the mall without your wallet? That’s what you’re doing when you shop for houses without having the financing arranged.

When you are preapproved by a lender, you know how much you qualify for, which makes house shopping a lot easier. Without preapproval, you could end up wasting time looking at houses out of your price range — or worse yet, lose out on a great deal while you scramble trying to find mortgage money.

6. Not shopping around

Mortgage rates and terms vary by lender. Some lenders may have tighter requirements and offer you higher interest rates, while other lenders might think you’re a safe bet and offer you better rates.

Don’t sign up for a mortgage without shopping around first. We make it easy with the lender search page in our Solutions Center. Here, you can look for the lender that will offer you the best rate.

7. Ignoring fees

Your interest rate isn’t the only charge you’ll see on your mortgage. A home loan is also loaded with fees such as:

  • Appraisal — the lender will hire a third-party appraiser, but you’ll pay the bill
  • Credit report fee — for checking your credit
  • Loan origination fee — the fee for starting a new loan
  • Processing fee — covers the cost of paperwork
  • Underwriting fee — for final analysis and approval
  • Wire-transfer fee — for moving money around

And those are just a few examples. Experts say fees can equal 3 to 5 percent of your total loan amount — a big number. Don’t agree to a loan without first getting all fees in writing. If they’re too high, negotiate them down or take your business elsewhere.

Many mortgage fees are simply add-ons to make extra money for the lender. So, challenge them. One good technique is to pit lenders against each other.

8. Not locking in

Mortgage rates change often. The rate you’re quoted when you’re shopping often can change — for better or worse — before the loan closes. But you can avoid this uncertainty by locking in your rate.

Most lenders will allow you to lock rates in for 30 to 45 days. But be sure you can close the property within that window. If you can’t, continuing the lock could cost extra. So when you’re negotiating your loan and fees, consider attempting to negotiate a longer lock as well.

9. Taking on more than you can afford

Lenders, like real estate agents, are in the sales business — the more you buy and borrow, the more they make.

Don’t assume that because you qualify for a $500,000 mortgage it’s the best deal for you. Do your own math and make sure you can comfortably afford your payments before you sign up.

What was your biggest mistake when shopping for a mortgage? Sound off in comments below or on our Facebook page.

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