Mortgage Advice

10 Commandments of Applying For a Mortgage Loan

October 17, 2012

Congratulations on your decision to buy a house! You’re one step closer to owning your dream home. Now all you have to do is apply for a mortgage loan and get through the closing process. When you apply for a mortgage loan, the lender will take a snapshot of your financial picture and evaluate your credit history, along with other financial factors.

My coworker, Marc Edelstein, and I put together these 10 steps for you to paint your lender a stable financial picture and increase your chances of getting approved when applying for a mortgage loan.

1. Don’t change jobs, become self-employed or quit your job. When applying for a loan, it is vital that you can verify a stable source of income that can be used to repay the loan.

2. Don’t buy a car, truck or van (or you may be living in it)! Don’t buy any big-ticket items that you have to finance. This will only increase your debt-to-income ratio and decrease your chances of getting approved for a loan.

3. Don’t use credit cards excessively or let your accounts fall behind. Any substantial changes in your spending habits could raise a red flag and hinder your chances of getting approved. It’s also important to demonstrate a faithful track record of repaying your current debts.

4. Don’t spend money you have set aside for closing. As you know, there are a lot of costs that go into buying a home. Obtain an estimate of how much money you will need upfront and plan to set aside an adequate amount of money to fund the down payment and closing costs.

5. Don’t omit debts or liabilities from your loan application. This step is simple. Don’t lie about your financial situation. If you lie on your application by omitting debts or liabilities, it’s considered fraud and you will be denied a loan.

6. Don’t buy new furniture. With all the excitement that surrounds buying a house, it can be tempting to splurge on new furniture and décor that will transform your new house into the home you’ve always dreamed of having. However, it’s important to hold off on any major purchases until you have been through the loan closing process.

7. Don’t originate any inquiries into your credit. Opening additional lines of credit causes lenders to speculate on your ability to repay a loan. Lenders will view you as a riskier investment and it could damage your chances of securing a loan.

8. Don’t make large deposits without first checking with your loan officer. Large deposits that are uncharacteristic of your past financial history raise a red flag to lenders.

9. Don’t change bank accounts. When applying for a loan, it’s all about painting a picture of stability for lenders. If you absolutely must change banking institutions, discuss it with your loan officer and give him/her adequate notice to arrange the necessary paperwork.

10. Don’t co-sign a loan for anyone. When you co-sign a loan, you assume debt, even if you are not responsible for the payments. It still increases your debt to income ratio and affects your ability to borrow money.

Follow these 10 important steps, and you should be good to go when applying for a mortgage loan.

Questions? Leave a comment. 

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