Mortgage Application Pitfalls

It is true that they say that not all mortgage lenders are equal, as the same goes for applicants. The truth is, the mortgage lending market is competitive and if you want to get the best deal, you need to set yourself apart from other applicants. When applying for a mortgage many people make very common mistakes that may put them in a bad light. However, getting to know some of these common traps can help you avoid making a costly mistake.

Credit

Obviously, one of the most important aspects of applying for a loan is your credit history. Having a negative mark or delinquent account on your credit history can greatly impact the type of loan that you are able to obtain. If you have a bankruptcy on your credit report, many lenders may be hesitant to lend you money. However, this does not mean that a bankruptcy will prevent you from obtaining a loan.

After bankruptcy, make sure your credit report is accurate and reflects your debts have been satisfied. It is also a good idea to get a letter from your creditors stating that you have no outstanding debts. If you completed a Chapter 13 bankruptcy plan, be sure to provide the lender a copy of your debt repayment plan, proving you repaid your debts. In many cases, a lender will not mark you as a risky borrower if you have paid your debts in full. This also applies to any current or delinquent debts; arrange a repayment plan with the creditor and obtain documentation to show that are currently paying these debts on time.

Employment

Many mortgage lenders prefer to see a stable employment history. Any changes to employment may flag you as a risky borrower, leaving you with a sub-par or no loan at all. The lender wants to see that there is no potential for financial hardships down the road. In the event you have changed jobs before applying for a mortgage loan, you need to prove your stability in other ways. For example, demonstrate that you changed to a higher paying job, or job with more work hours. If you signed an employment contract with your employer, provide a copy to the lender along with your loan application.

Relationships

Mortgage lenders cannot discriminate between single, married or divorced applicants based on their relationship status alone. However, your status may greatly affect your total income potential; which may influence the type or amount of a loan you are able to qualify for. Because your loan eligibility will be based on the proportion of your income to expenses ratio, keep in mind that you may not qualify for a higher loan amount if you are single or divorced. If you are required to pay child support payments, provide documentation to demonstrate your ability to make timely payments. Although these payments are considered an expense, the lender always appreciates a pattern of timely payments.

Purchases

Many people fall into the trap of making too many large purchases at once. If you are applying for a mortgage loan, do not buy any other large purchases or apply for additional lines of credit. Remember that the amount of loan you will be able to obtain, and the interest rate on that loan, are directly influenced by the amount of debt you have and the amount of cash in the back. Wait until after the loan is secured before buying any new furniture or materials for renovations.