"The two questions that anyone ever asks me are: 'Are house prices going to go down?' and 'Is it a good time to fix my mortgage rate?'-Evan Davis-
Applying for a mortgage can be a long process. However, there are several types of loan options available for Florida residents. The options consist of Conventional, FHA, Rural Housing, First Time Homebuyer, Jumbo Fixed Rate, FHA Streamline Refinance, VA, and Reverse Mortgage loans.
As the waiting commences, it can be tempting to think of all the new things you'll have the money to buy when you get approved. But, although it may be exciting to think about the future, there are some things you should avoid doing while your mortgage is still in the approval process.
Owning a new home is a significant life change. But if you have the proper documentation, the mortgage application process should go smoothly. Not necessarily. Many things can cause a financial institution to reject an otherwise perfect application.
Even if you think you have a good shot at getting approved based on what you submitted, there are a lot of factors that can determine your situation. For example, your mortgage application may get rejected by the financial institution due to incomplete documentation, bad credit history, too much debt, an unreliable employment history, and other incidental things. So bear in mind the following tips if you plan to take out a new mortgage or refinance anytime soon.
Be careful of significant purchases.
Mortgages are critical long-term debts that can affect your debt-to-income ratio. When applying, try to avoid buying anything that will raise this ratio. Instead, pay off any outstanding credit card bills, car, or personal loans. If possible, save up every extra cent you can towards the down payment.
As Florida Community Association Manager, I have had clients come into the community asking questions about homes in the community. Of course, I would always direct them to a Licensed Real Estate Agent. Still, in doing so, they would ramble on with excitement that they know they have excellent credit because yesterday, the couple bought a $50,000 car, and last week the wife bought an expensive piece of jewelry and got both items on credit. It is suitable for them but not answers that mortgage lenders are looking for when they inquire about their debt ratio, cash, and recent spending habits.
As a loan applicant, you want to avoid doing anything that jeopardizes your mortgage application. The Home Buying Institute advises against racking up credit card debt missing payments and urges caution with overall spending in the run-up to the application. It may just give you a better chance at getting approved for the mortgage with your preferred lender.
Keep track of all spending.
When applying for a loan, you must ensure all bills are in order and paid on time. Financial institutions like to see responsibility. If you fall behind on payments, you can forget about approval. The key is to stay on top of your bills and make sure you have the documentation to back them up. It's easy to get behind with accounts, so keep a close eye and stay organized.
"You don't want to have so much money going toward your mortgage every month that you can't enjoy life or take care of your other financial responsibilities."-Dave Ramsey-
Don't apply for more than you can afford
One of the biggest mistakes first-time homebuyers make is borrowing more than they can afford later and getting into financial difficulty. If you can't easily afford the payments on your mortgage, you shouldn't buy the house. If you're considering buying a home, visit your bank or mortgage lender to get pre-approved. Then, accept the level of risk you're willing to take
Shop around for a mortgage lender. When searching for a mortgage lender, ask which niche is their primary focus. Are they used to working with first-time homebuyers? If you get approved, conduct as much research as possible and consider whether you both match each other's requirements.
Understand your lender's standardized documentation A mortgage application will include a personal financial statement (PFI). This summary is a financial statement showing income and expenses. Lenders will pull the PFI from your credit report for a mortgage loan. If you have to pay a credit card on top of the PFI, that will impact your credit score. Lenders use standardized, detailed paperwork for the mortgage loan process–start getting familiar with it now!
Find a term tailored to your needs.
It can be hard to project so far into the future, but are you aware that a mortgage term can be 30 years or more? If you don't think you'll be in a position to pay off the mortgage by the end of that term, you need to look at other options and decide whether you need to plan for a shorter mortgage option. Whether you plan to refinance or sell your home early, these are primary considerations when looking for a mortgage.
Jay Goldberg, a mortgage broker with over 20 years of experience at Union Bank, recommends that first-time buyers consider FHA loans as they often offer much lower interest rates. In addition, veterans who have served their country can avail of a VA loan which sometimes requires no downpayment.
"Ten or 12 years ago, in the Great Recession, self-employed and professional clients were having a tough time, as qualifying for a loan wasn't easy. Today, clients are qualifying, but it's challenging to find a house to buy." Jay Goldberg, Union Bank Mortgage Broker-
Essentially the message is to do your research. There are many options available if you take the time to shop around carefully.
Buyer beware
If a mortgage sounds too good to be true, it probably is. Read the fine print. When selecting which loan is right for you, I recommend considering all options. Mortgages must meet your needs, budget, and personal projection. First, you have to understand your goals when purchasing a particular property. Then you can consider looking at a bank, mortgage broker, home builder, appraiser, title company, or another closing facilitator. The more specific you are in your comparison analysis, the better. With a bit of thought and planning, you can buy a much more expensive home than someone that isn't as financially sophisticated.
Focus on the numbers first– make sure you know your property's value. Typical industry standards measure property in the cost per square foot. If there are no comparable properties in that neighborhood, look at online sites for your area. Typically, they pay closing costs, lender fees, and back taxes when someone purchases a property. These costs can significantly lower the property's value. The last thing an investor wants is to find out later that the property is worth less than what they paid for it.
Your credit score matters
Credit matters. Whether you're interested in a loan or not, your credit score is an essential measure of long term ability to pay back what you owe and the responsibility you take when making a purchase. Stay on top of all your credit accounts and maintain them at good standing to improve your overall score. Remember to close any disputed charges before applying for a mortgage to avoid delaying approval.
Do you have a stable career?
Does your job history indicate whether you will make a good borrower? Well, it might. Extended employment with the same company for a minimum of two years is more likely to be approved by a lender.
Vicky Shaw suggests understanding your budget and allowing for any unforeseen costs. In addition, she advises keeping up to date on credit reports and maintaining a steady work history when planning for a mortgage.
A good credit history suggests that you are responsible and committed to your work. On the other hand, those with shorter job histories or frequently changing jobs may seem risky candidates and ultimately get rejected.
Are you planning to start a business?
Starting a business may not be the best decision for now. Although transitioning to self-employment can increase your earning potential, it may leave you without a stable source of income. It's better to start a new business after qualifying for the loan. Park those dreams of entrepreneurship until you have secured your mortgage first.
Final thoughts
Your home loan is crucial to you, but it's also important to your lender. Any blip in your income, assets, or credit has the potential to affect the loan in a big way. So please don't be shy about discussing it with your lender. Even a recent change in your job or employment status is an excellent idea to mention. It is best to be honest in your approach by telling your loan officer about all of your intentions. You do not want the application to fall through because of carelessness or deceit on your part.
So, with all of this in mind, your mortgage application process should be a lot smoother. Be patient, rigorous with documentation, and maintain a sense of humor to carry you through.
"If you think nobody cares about you try missing a couple of payments."-Steven Wright-
This article is for informational purposes only. It should not be considered Financial, Real Estate, or Legal Advice. The market fluctuates; therefore, not all information will remain the same. Consult a financial or real estate attorney before making significant real estate decisions.
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