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8 Financial Mistakes To Avoid When Applying For A Mortgage

Deciding on buying a house is easy. However, financing your home purchase is the tricky part. If you need help with your home purchase, then applying for a mortgage is next on your to-do list.

To increase your chances of sealing a good mortgage deal, make sure to avoid the following financial mistakes.

Taking Additional Debt

Your Debt-To-Income Ratio is one factor that lenders will check when applying for a home loan. If you rack up your debt before your mortgage application, your DTI ratio will go up. Most lenders consider borrowers with a DTI ratio of more than 43% a risky borrower.

Failure To Pay Your Dues On Time

Failure to make debt payments on a timely manner can have a huge effect on your FICO score and credit history. Your credit history and credit score reflect the type of debt payer you are. Both can affect your chances of scoring a mortgage. If you’re applying for FHA loans, you can qualify even with a FICO score of 580. However, for those applying for larger mortgages such as Jumbo Loans in Texas, you need a higher credit score – typically between 680-720.

Not Having Enough Funds To Cover For Down Payment Fees

While some mortgage programs allow borrowers not to pay an upfront fee, some will still require you to put at least the minimum down payment due to get a mortgage. It only means you need to start saving up cash if you plan on buying a house soon.

Saying Yes Because Of Low-Interest Rates

Some mortgage lenders will entice you with low interest rates. Most first-time homebuyers will naturally consider such an offer and thinking they can seal a good deal. However, there are other costs to consider. One is the APR, also known as the Annual Percentage Rates. Make sure to read, understand and ask questions to know what how much the mortgage really costs. This is why shopping around for mortgages and lenders is essential.

Having A High Credit Utilization Ratio

The way you use your credit card can also have a direct effect on your credit score. Many lenders consider using more than 30% of your credit card limits as a high Credit Utilization Ratio.

Recommended Read: What Is a Good Credit Utilization Ratio?

Making Career Changes Before and During Mortgage Application

Switching jobs can affect your chances of qualifying for a home loan since you’ll need to show how much your monthly income is and if it can cover enough for your expenses, debt payments, and the mortgage. You need to show financial proofs to your lender that you’re financially stable.

Not Getting Pre-Approved For Mortgage

Many people confuse prequalification with pre-approval. However, the latter is the gold standard in getting mortgage approval. By getting pre-approved for a home loan, you’ll get to know how much of a house you can really afford and will tell home sellers you’re capable of buying their home for sale.

Neglecting The True Cost Of Home Ownership

Buying a house is no easy expenses. Aside from the down payment, monthly mortgage, interest fees, and closing rates, there are other costs to consider. You need to consider your expenses like groceries, insurance, even home repair, and maintenance.

Good Read: 20 Hidden Costs of Home Ownership

Make sure to do your research and to ask your lender all the costs that come with the mortgage deal.