The Most Common Mistakes First Time Home Buyer Makes Applying For Mortgage
This Blog On The Most Common Mistakes First Time Home Buyer Makes Applying For Mortgage Was Written By Gustan Cho NMLS 873293
Everyone makes mistakes and it often happens among the best of us no matter how young or old we are. Unfortunately, there are some mistakes that can be very costly and many times it is very difficult to live with regrets. There are many mistakes first time home buyer makes applying for mortgage. The most common mistakes first time home buyer makes applying for mortgage are the following:
- Purchase a new car : An average auto payment is around $400 per month which is equivalent to an $80,000 mortgage. Any auto payment will really boost your debt to income ratios and may disqualify you for the loan amount you need to qualify for
- Not doing their due diligence in choosing a loan officer : You need to get along with your loan officer. Check out references on the loan officer you plan on using as well as the mortgage company they represent
- Not doing due diligence prior to applying for mortgage loan : Get familiar with the types of loan programs out in the market and talk to several different loan officers from different mortgage companies and compare apples to apples and do not just sign up with the first loan officer you consult with
- Not turning in mortgage documents on time to lender If the loan officer and/or the mortgage processor asks you for documents, turn it in promptly. Delays in turning your documents requested in will cause delays in the mortgage process which may delay your mortgage closing
- Being late on a monthly debt payment: One late payment can plummet your credit scores by 80 FICO Points. Make sure you make all of your debt payments timely
- Applying to multiple lenders at the same time without telling lenders that they have multiple applications : Need to choose one lender and apply to that one lender if you are planning on closing on your home loan. Applying to multiple lenders simultaneously at the same time and not telling them about will potentially kill all of your loan applications and you may not be able to close your loan
- Not hiring a realtor to represent them : Real estate agents are professionals that will not cost you anything if you are a home buyer and will look out for your best interest. Many times home sellers think that they can save money by not listing it with a realtor but at the end of the day, many home sellers end up hurting themselves by trying to save the realtor commissions and trying to sell the property themselves
- Hire credit repair company and dispute credit: You cannot have credit disputes on non-medical collection accounts over $1,000 aggregate in outstanding collection account balances and charge off accounts. Credit disputes needs to be retracted before your mortgage process can move forward
- Change jobs or go on maternity leave: If you change jobs, a new verification of employment need to be done and you cannot close on your home loan until you have 30 days of paycheck stubs from your new employer. Changing jobs and/or going on maternity leave will definitely delay your closing of your home loan
- Run up their credit cards and apply for new credit: Mortgage lenders will do periodic soft pulls on your credit and any new debt will be calculated on your debt to income ratio calculations and if you go over the mandatory debt to income ratio caps, it will disqualify you for your mortgage loan
- Buy new furniture and appliances: Many home buyers get overly excited about their home purchase and decorating their new home that they apply for new furniture and appliance credit cards and incur new debt which may affect their debt to income ratio requirements
- Co-Sign for a family member: Never co-sign for a family member prior or during the mortgage process. Co-signing on any loan will affect your debt to income ratios
- Not hire a home inspector: Trying to save a few hundred dollars and not hiring a home inspector can potentially cost you tens of thousands later.
Mortgage Process Today
Lack of the mortgage process is one of the most common mistakes first time home buyers make applying for mortgage. A home purchase is the single largest investment for most folks. The home purchase process is not like any other high ticket item purchase. When you go shop for a car, you visit your local dealership and go for a test drive. Your salesperson will take you for a test drive on several vehicles that you have an interest in. You then decide which vehicle in stock is best for you and you go to the finance department and talk to the finance manager where he will most likely get you financed and try to sell you every available option including an extended warranty. You get approved for the loan in a matter of less than an hour and while the finance manager is getting you approved for your auto loan, the salesman is prepping your car for delivery. Within a couple of hours, you walk out the dealership into your new car and drive off. Transaction complete.
With a home purchase, it is not that simple. There are many common mistakes first time home buyer makes applying for mortgage due to the complexity of the mortgage process. Mistakes first time home buyer makes applying for mortgage can be avoided by the borrower doing a lot of due diligence prior and during the mortgage process. Most folks are not familiar with the home buying process and even for experienced home buyers and homeowners, the whole real estate and mortgage industry has gone through a complete overhaul where everything is different in the real estate and mortgage industries.
Mortgage Industry Today Compared To Before The Great Recession Of 2008
The mortgage process has always been complex but more so after the 2008 Real Estate and Mortgage Collapse. The mortgage process is even complex for the most experienced mortgage professionals. The whole mortgage industry went through a complete overhaul after the Real Estate and Mortgage Collapse of 2008. Countless of mortgage loan officers and mortgage professionals have left the mortgage business. Some of these mortgage professionals left the industry for good while a good percentage of them came back to the industry a few years later and discovered that the whole mortgage industry has changed.
Becoming A Loan Officer Today
To become a loan officer today here are the requirements:
- To become a loan officer in residential lending, a person has to go through a NMLS Approved 20 Hour pre-licensing course and pass it
- A loan officer candidate needs to take and pass the NMLS SAFE ACT federal exam that is 125 questions and get a passing score of 75%
- All mortgage loan originators need to undergo intensive federal and state background investigations
- Every loan officer candidate need to go through credit checks and mortgage regulators need to review the applicant’s credit report and see whether or not they are suited to represent the public and not have disregard to credit and prove they do not have disregard to credit: Bad credit history is deemed as the applicant not having financial responsibility and regulators view that if the loan officer does not have financial responsibility with their own finances, they are not suited to represent public customers
- Every state had their own licensing requirements. Some states requirement on Continuing Education hours is more than the standard 8 annual CE Hours.
- Taking and passing the standard federal NMLS SAFE ACT Examination was not sufficient with over half a dozen states where they required a separate state exam that loan officer candidates needed to pass in order to become licensed in that state.
- The Consumer Protection Financial Bureau, also known by the CFPB, was created and it took no time for the CFPB to develop their reputation of being a no-nonsense regulatory agency where they do not hesitate to impose harsh fines and do not believe in giving a violator of mortgage regulations a slap on the wrist.
- There seems to be no end to new mortgage rules and regulations and the mortgage business seem to getting more and more complex where it is becoming next to impossible to fully understand even the general basic mortgage process in a short period of time.
- Educating a borrower was always key for loan officers and made the mortgage process smooth for both borrower and loan officer.
- It is totally different today where many of the mortgage rules and regulations do not make any sense, even for the most seasoned and educated mortgage professional
- Trying to explain some of the new mortgage rules and regulations in layman terms to borrowers can become quite a challenge and frustrating. How do you explain the reason of TRID where a desperate home buyer who has gone through a grueling loan processing with extensions after extensions cannot close for at least three days from their clear to close due to the new TRID Mortgage Laws.
- Politicians who made up these mortgage rules and regulations are those who do not know too much about the mortgage business and think that they are creating laws for the best interest of the public consumer but due to their lack of experience and the know how of the mortgage industry, their newly created laws have done more damage than good. The GFE, Good Faith Estimate was replaced by the Loan Estimate or LE and the HUD-1 Settlement Statement was replaced by the Closing Disclosure, CD.
Complexity Of Mortgage Business And Mistakes First Time Home Buyer Makes Applying For Mortgage
Common Mistakes First Home Buyer Makes Applying For Mortgage is not just the topics I covered above, but happens often due to the complexity of the mortgage business and the addition of new mortgage regulations. The complexity of the mortgage business is getting more complex instead of less as time passes. There seems to be no end.
Due to the complexity of the home buying and mortgage process, it is almost impossible to understand the full mortgage application and approval process in a matter of days.
- Borrowers will be getting dozens of pages of mortgage disclosures after they apply for mortgage by the lender over and over again and will be asked to sign and initial them and send the wet docs back.
- Any changes to rates or terms, new disclosures needs to be sent out to borrowers and acknowledged.
- Majority of borrowers will not review every page and will just sign the needed signature pages and send it back to their loan officer without reading the mortgage loan disclosures.
- Most borrowers are excited at the thought of buying their first home that they do not care to review the mortgage docs or try to educate themselves in the mortgage process.
- This are common mistakes first time home buyer makes applying for mortgage and many times can be a costly mistake.