Qualifying for a mortgage means proving to the lender that you deserve a loan based on your good credit report, stable income and solid management of your finances. If you are already at the stage where you have saved up for the down payment and even picked a lender and got pre-approved, you are probably thinking that you are halfway through, but bear in mind that a pre-approval is not a final approval and that lenders will go over your finances again in more detail. In the meantime, your job is to stay away from anything that could jeopardize your mortgage approval. Try to avoid the following situations.
Tapping The Savings Account
You probably already know that you are required to pay at least the minimum 5% of the down payment. Saving up for the down payment takes its time, but when you have the money together, don’t be tempted to spend it bit by bit on other things. After all, you’ll need the money for other costs like closing costs, legal fees and moving costs.
Paying Your Bills Late
Whether it’s the heating bill or your credit card balance, the lender will check how responsible you are with paying your bills. One of the things they can hold against you is late payments. If you are a late payer who always misses the due date, lenders will assume that you’ll fall behind your mortgage payments as well and may not give you a mortgage.
Getting Another Loan
Staying away from more debts is essential in this key period, especially if you are about to take out a loan for a new car, vacation, wedding, etc. Put on hold any new purchases given that it will immediately show on your credit score and increase your debt-to-income ratio. The debt-to-income ratio is not supposed to exceed 30%, and if it does, you will be seen as a risky borrower and such a reputation can easily leave you without a mortgage loan or with hefty interest rates.
One of the key eligibility requirements is steady employment for around two years, which means changing your job around this sensitive time is a bad idea unless it’s a promotion or a better-paid job. On the other hand, starting a new career from scratch is a different story. A career switch usually implies a decline in income which won’t sit well with the lenders. However, if you plan to accept a lower-paid job or switch careers after the mortgage approval, make sure to opt for an adequate mortgage amount you will be able to handle with a smaller paycheck.
While a mortgage pre-approval is a great indicator that potential borrowers are eligible for a mortgage, buyers need to be aware that they still haven’t reached the finish line and that their finances could change and affect their mortgage application. Many buyers don’t get as much as they want, so here are some tips on shopping on a tight budget.