1. Not getting pre-approved before you shop
When it comes time to go shopping for the right mortgage, a pre-approval helps prepare you for how much you can afford, as well as gives your REALTOR® a clear purchase range. When you’re pre-approved, the interest rate can be locked-in for up to 120 days. Having an idea of how much your payments will be monthly will give you peace of mind. Without being pre-approved for mortgages before you shop, you could end up looking at homes that are outside of your price range.
2. Applying for new credit before your purchase
When you are applying for mortgages, your mortgage broker will need to balance your income with your expenses to balance your GDS (Gross Debt Service) and TDS (Total Debt Service) ratios. When you take on more debt, this will inevitably reduce your purchase power, especially if you have vehicle loans. As we know, cars are expensive and add large set payments that reduce your qualifications. If you apply for credit cards or a car loan during this time, the number of checks on your credit can also decrease your score. Depending on your original score, this can make it drop a few points.
3. Changing jobs during the purchase process
When you receive that life-changing job offer, you must decide whether to take it and possibly harm your pre-approval or stick with your current job. With strict mortgage lending guidelines, as mortgage brokers, we must provide thorough income verification. In the case of switching jobs, you would need to be past your probationary period to even qualify. If you have an accepted purchase and sale agreement and you switch jobs with less than 3 months until closing, you can be on the hook for the funds if the bank doesn’t approve of your income due to being in probation. This means that you will have to find ways to secure the funds to finalize your purchase. If you don’t close on time, it can affect the seller and, if they are also buying, can disrupt their purchase. That chain effect can lead to a lawsuit for damages.
4. Not saving enough for a down payment and closing costs
When purchasing, we typically think about the big cost – the down payment we need to purchase. Where a lot of people get caught is when they are required to show down payment and closing costs. Closing costs pay lawyers’ fees, appraisal, land transfer tax, utilities and even property taxes. Lenders generally like to see 1.5% of the purchase price in funds saved. This means if your purchase price is $300,000 you can expect the lender to look for $4,500 in closing costs in your bank account.
5. Failing to ensure you have good standing credit
Even though your income may be sufficient to purchase a home, how does your credit stack up? Your credit score plays an important role in qualifications. If your score is lower than 680, this could mean a harder time qualifying traditionally through an “A” lender, or a lender who offers competitive market rates for individuals with good credit qualifications. If your score is lower than 680, it could mean possibly finding an alternative lender with a less attractive rate. A credit bureau will also show if you’ve had missed payments, collections or bankruptcy. These situations lower your score and show the mortgage lender that you have a past of not being able to make your payments.
With so many moving components in the mortgage process, we recommend ensuring you ask questions for anything that could affect your qualifications.