The median monthly mortgage payment for Americans is $1,556 a month. However, the amount you pay will depend on the amount you borrow and your credit history. This indicates to lenders the amount of risk they will take on by lending you the money.
To ensure you secure an affordable monthly rate and favorable terms, you need to prepare for your mortgage application. This means setting yourself up for success.
Avoid making these four mistakes on your mortgage application.
1. Add New Credit
Do not apply for new credit if you're planning on applying for a mortgage. In fact, try to avoid adding new credit accounts for at least six months leading up to your application. This can be a sign of financial instability and an inability to pay your mortgage if obtained.
Avoid applying for these types of accounts:
• Credit cards
• Car loan
• Student loan
• Personal loan
At the same time, don't close any credit accounts, either. Closing a credit account reduces the amount of credit available to you. This increases your credit utilization ratio, which in turn negatively affects your credit score.
2. Don't Know Your Credit Score and Report
Your lender will pull your credit report and score. They will then use it to determine your financial viability and likelihood of repayment. If approved, they will also influence the interest rate and terms of your mortgage loan.
Because they are so influential, you should know what the lender will find before they go looking. You can request a copy of your credit report and score from a variety of reputable online services.
Many of these services also allow you to track your score. This is especially helpful if you're trying to improve your score before you apply. This will help you secure the most favorable terms for your loan.
3. You Ignore the Lender
Few people submit a complete home mortgage application where the lender doesn't need to request any additional documentation. If the lender reaches out, asking for additional paperwork or documents, don't ignore them.
Your application sits on hold until you deliver the requested items. If your application sits for too long, it will eventually get auto denied for being incomplete.
4. Not Maintaining Provable Income
Now is not the time to switch jobs or quit your job to start a new business. This indicates instability, which can make a lender question whether or not you will be able to repay the loan throughout the loan's life.
You also want to be able to have a provable record of income. If you have a cash-based business or job, this can cause problems, so be sure to create a traceable record.
Ace Your Home Mortgage Application
By following these four tips, you can set yourself up for a successful mortgage application. Starting months before you plan to apply will give you plenty of time to get your credit report, score, proof of income, and documented assets in order. That way, you can submit your application with confidence and score a favorable interest rate and terms.
Browse our other financial articles for more advice on how to make smart money choices. And visit the Real Estate and Loan sections to learn more about maximizing your mortgage application.
