Once you receive your pre-approval or conditional approval, it can be easy to think that you are in the clear. However, there are a few key things to avoid during the process of applying for a mortgage, particularly during the approval process. Here are the 10 commandments for getting a mortgage, including a few of the don’ts.

  1. Don’t Take Out Other Loans – While this might seem to be a no brainer, people still try to get additional loans, which can impact their debt-to-income (DTI) ratio. Lenders are considering the amount of debt you have as a factor in your ability to repay a mortgage. If you are trying to get a mortgage or have a pre-approval avoid increasing your DTI.
  2. Avoid Swiping Your Credit Card – Credit card balances are part of that DTI, so if you are carrying a high balance on your credit cards, then you also run the risk of rejection. It is a good idea to avoid increasing your balances before you apply for a mortgage. Limiting your credit card use can also lower your credit score by increasing your overall credit utilization ratio.
  3. Don’t Miss a Payment – Lenders are trying to judge whether you are a good risk to finance. When you miss payments, you are lowering your credit score, but also demonstrating that you are a higher risk. Your payment history can account for up to 35% of your overall credit score, impacting it more than any other factor. Lesson here: Don’t miss a payment, especially when you are applying for a mortgage!
  4. Avoid Big Purchases – While it might be tempting to tap your savings to make that big purchase for a new tv or make other larger purchases. As you work toward closing your loan, there are going to be closing costs and your down payment. Some lenders might even look for additional financial reserves. Therefore, it might be better to hold off on those big purchases until after the closing.
  5. Change Jobs – While that career opportunity might look appealing, shifting jobs or taking a leave of absence can set off alarm bells for a lender. If you are changing jobs and increasing your salary or staying in the same field, likely it won’t be a problem. However, if the change involves temporary unemployment or a salary reduction, then you might have some difficulties with your lender.
  6. Closing Credit Card Accounts – You might think that reducing your debt and closing that high interest card is a good thing, but it reduces your level of available credit and could negatively impact your DTI. If you want to close that card, wait until after your mortgage is approved.
  7. Don’t Make Big Deposits – Your family or parents might be helping you with that down payment, but unless large deposits are documented, it could be a red flag for your lender. There are rules related to down payments gifts, which need to be followed. Simply put, it is best to have the money sitting in your account for at least two months before applying for a mortgage.
  8. Co-sign for a Loan – This commandment fits under the idea of trying to get additional credit or personal loans when applying for a mortgage. When you co-sign, that loan is also going to be reflected on your credit report. If they don’t keep up with the payments, your credit score will also take a hit.
  9. What’s Your Spouse’s Credit Like? – If you married someone with less than perfect credit, you should consider working on improving their scores before you try to get a mortgage. It will improve both of your DTIs and can positively impact the amount of interest you pay.
  10. Check Your Credit – There are plenty of ways to check your credit these days, so before you apply for a mortgage, check your score. You might find errors that you can get corrected that are negatively impacting your score. At the same time, if you see areas that you need to work on, you can do that before applying. Less than perfect credit does not mean that you cannot qualify for a mortgage, but it can make it more challenging.

Purchasing a home is a huge milestone in anyone’s life. It involves investing in your future. When you practice these steps, before and during the mortgage application process, then you are going to improve your odds of successfully purchasing your dream home.

If you are in the market for a new home, Elevation Mortgage can help. We can walk you through the mortgage application process and address your needs. Contact us today!