In this blog, we will cover and discuss the top 11 time-consuming mortgage mistakes to avoid during the home buying process. When buying a house, most of the time, you need to get a mortgage which takes from 3 weeks to 4.5 weeks. Sometimes refinancing (streamline refinance) might take two weeks. We have prepared a list of how to avoid the common mistakes and get into your home as soon as possible after your underwriter clears all required conditions and gets you a CTC (Clear to Close).
What Are The Most Common Mistakes That Home Buyers Make
In the paragraphs below, we will walk you through significant mistakes to avoid in first-time home buyers. Due to these mistakes, home shoppers suffer getting their mortgage denied or delayed for weeks, months, and sometimes even years. Please go through them carefully so you are not surprised when talking to your loan officer, who will represent your credit score, debts, liabilities, and employment in front of a mortgage underwriter.
First Mortgage Mistakes To Avoid Is Forgetting To Pay Your Mortgage on Time
If you cannot make your payment by the end of the agreed-upon period, it’s officially considered a late payment. This will result in you being charged a late fee in the short term. The fee for being late is determined by the type of loan you have. Certain states limit how much interest may be extracted from customers who are late in their payments.
The late charge is typically only applied to principal and interest on most loans. Let’s assume you have a $2,000 monthly mortgage payment based on principal and interest. If the late charge is 5%, you’ll lose $100 dollars in the late payment charge.
Mortgage Mistakes To Avoid Is Being Late On Debts
Your payment history gets the most attention out of all of the credit factors, possessing a 35 percent weighting. So, what can you expect if your credit score goes down? The simple answer is that it limits your access to credit. However, the practical consequences may be more limiting.
Can You Buy a House With Bad Credit?
It’s more difficult to purchase a new house or refinance an already purchased one when you have poor credit. Even if you meet the requirements for mortgage approval, you still might not qualify. You may also encounter problems receiving new credit cards. Credit cards that you can get at stores are part of this category. Outside access to credit and money contain many different consequences. When you are applying for jobs, employers are likely to check your credit. It may also have an impact on insurance rates.
How Can I Pay My Mortgage With a Disruption In Income?
If you are having difficulty paying your mortgage payment on time because of a life change, the most important thing to remember is to reach out to your lender or servicer. A loan modification occurs when a lender agrees to lower or suspend payments, or they might even work out a payment plan to make sure that you do not get behind again.
You can use these options to discover a solution that fits within your budget. Your credit will continue to suffer until the loan is current, even if you’re on a payment plan.
Mortgage Mistakes To Avoid Not Saving For a Down Payment
To purchase a home in 2022, you should be ready to make large payments. Not only will you be paying a 20 percent down payment, you’ll also need to have enough cash to cover closing expenses, moving fees, repairs, and the first few months’ mortgage payments without depleting your emergency fund.
It cannot be very comforting to first-time purchasers, so getting a mortgage pre-approval is vital before diving into homeownership. It’s worth it to ensure you’re in a good financial position before starting.
Mortgage Mistakes To Avoid Defaulting on Student Loans
First-time homebuyers can be approved for an FHA mortgage if they have defaulted on student loans. However, if they default on federal student loans, they must first exit bankruptcy and clear the CAIVRS database before their mortgage lender approves their FHA loan application. A traditional loan can be taken out on a defaulted student loan.
Government Versus Conventional Loans With Defaulted Student Loans
Because the federal government does not back conventional loans, they don’t require a CAIVRS report. However, your lender must first evaluate you to determine if you’re a credit risk. A credit score of 680 or higher, a down payment, and a letter demonstrating how you dealt with the defaulted student loan (loan rehabilitation, settlement, repayment plan, etc.). You should learn everything you can about the student loan rules of Freddie Mac or Fannie Mae if you take out a traditional loan. Your student loans might harm your DTI ratio.
Avoid Applying For Credit Accounts
Hard inquiries damage your credit score in the short term. Although a hard inquiry will remain on your credit report for two years, it will usually only impact your credit for a few months. Too many hard inquiries in a brief time might mean that you seeking out loans and credit cards that you are unable to repay.
Don’t Buy New Car During The Mortgage Process
If you apply for a car, personal or mortgage loan, the bank will check your credit. Sometimes they do it multiple times. A way of protecting you from this is doing a credit freeze. Every hard pull damages your score (sometimes from 10-20 credit points). Avoiding multiple credit pulls will save time and stress when seeking approval for a mortgage, especially when your credit score is not ideal and you are between the 580-620 credit range.
Mortgage Mistakes To Avoid Starting a Business / Being Self Employed
Starting a business and quitting a job is not a smart idea when trying to get a mortgage. These are different types of employment (you are transitioning from W2 to 1099). In most cases, you must have your business open for at least two years to qualify for the loan. Holding on to that can save you two years of your life when trying to buy a house simultaneously.
Can I Start New Business While Buying a House?
It’s a terrible idea to switch from an employee who receives W-2s to an independent contractor or start your own firm just before or during your mortgage application. Although specific loan programs allow for one year of self-employment history, most lenders need to see a two-year financial documentation record if you are self-employed.
How Do Mortgage Underwriters Calculate Income?
The 1099 owner’s income is calculated based on their previous year’s W-2 earnings, meaning the underwriter cannot correctly calculate your revenue without using tax returns. This means that while your mortgage application will be delayed until you submit your taxes, you’ll need to pay all outstanding taxes before using self-employment money.
Avoid Changing W2 Job To 1099 Wage Earner Employment
Any person transitioning from a base salary to unstable employment can extend the time for getting her loan approved and cleared to be closed. For example, a travel nurse is treated like a 1099 job based on hours and contract (usually 13 weeks long). You are needed to write a good letter of explanation so your underwriter can understand your situation.
Can You Qualify For a Mortgage With Seasonal Jobs?
Any seasonal job or contract job is less appealing for a lending company than a steady and full-time job with a salary where the employer does not change. So before transitioning to a commission job even better paid, it is much better to hold on to the salary job and buy a house first, not wasting time on additional paperwork and ensuring you qualify for it.
Can You Switch From W2 To 1099 Job During The Mortgage Process?
Income paid on a commission basis, whether as a bonus or over time, is usually reported over the last 24 months. It will be challenging to get a loan if you don’t have a two-year history of earning this sort of money. Changing this type of compensation structure might cause problems and risk mortgage approval. Even if you left your previous job with a comparable salary, it might be challenging to determine whether it’s not the same role.
Avoid Changing From Full-Time to Part-Time Job
A second job with no prior history as the new position would be considered a risk to the borrower’s primary employment, which is also damaging to your monthly mortgage payments. The lending company will want to see that the borrower has worked all their employment simultaneously for two years.
Do Mortgage Lenders Verify Employment?
Most likely, the lender will demand W2s and verifications from all employers for the previous two years and get a two-year average for any income earned from several occupations. A second or third job might help an applicant qualify for a mortgage. In addition to the borrower’s full-time employment income, the lender will consider part-time earnings.
Avoid Co-signing for Someone Else During Mortgage Process
There are drawbacks to having or being a co-signer. There are a few drawbacks involved with a co-signed mortgage loan. Taking on some of the responsibilities for the loan: the lender or other creditor can come to you to get money if they miss a payment. Your credit might be lowered when the primary people are late on a payment.
Late payments on the main borrower plus co-borrowers are reflected on both credit reports. It’s a significantly worse credit dent if the individual enters into foreclosure. After co-signing a mortgage, you might not be able to qualify for a new loan. However, it all depends on your DTI, credit score, and money in your bank account.
Should I Settle Collection Accounts For Less?
Settling collection for less money will likely lower your credit score instead of helping you. In most cases, using $15,00 or $20,000 as a down payment will increase your probability of getting a loan and lower your DTI. Thanks to a higher down payment, you are reducing your risk of being default on a loan. Lenders will like to see that and will give you better interest rates based on the higher money you put down.
Can I Change Job Prior To Buying a New Home?
It is not necessary to quit your job while purchasing a house. Although it may be simpler to wait until after closing to make a change, the perfect career opportunity may appear in the middle of buying a home. If you switch jobs while purchasing a home, you must notify the lender and provide information about the transfer.
Can I Get a Mortgage Right After Getting a New Job?
A new job position may help your loan application. However, if you take a pay cut, move to a different sector, or start your firm, your employment change might jeopardize your closing. A pay cut, for example, would impact your debt-to-income ratio (DTI). A mortgage lender may decide that home ownership is not the best option for your finances if your DTI is higher.
Can I Change Job While Purchasing a House?
What happens if you change jobs while purchasing a house? If you move between employers while buying a property, you’ll need to supply a lot of paperwork to the lender. You must inform them of the job change and provide updated salary information. Furthermore, the lender may ask why you want to make this career transition. If you give the lender all the requested information, they will most likely reconsider your application.
What If I Change To a Better Paying Job While Buying a House?
The lender may proceed as if nothing has changed if the job change resulted in higher and more constant pay. However, if you earn less or have a less certain income, the lender may decide to cancel the closing. Is it true that changing jobs will jeopardize my mortgage approval? Changing jobs might affect your chances of a mortgage.
When applying for a mortgage, a lender will carefully evaluate your earnings and employment history. Due to these criteria, you may be rejected if you make any job changes in the months before your mortgage application. Even if you already have pre-approval, a lender will need to examine your qualifications again for either a first-time house buyer or refinance an existing mortgage.
October 4, 2022 - 8 min read