6 Ways to Avoid Getting Your Mortgage Application Denied (VIDEO)
Avoid getting denied when you’re looking to buy a house or condo. If you’re like most of us, you will need to look into getting a mortgage. Applying for and getting improved for a mortgage can be one of the biggest steps in your life. That’s why it’s so crucial to get it correct the first time.
Unfortunately, there aren’t any classes offered in high school or even college that tell you how to get a mortgage. Due to this, mortgages are denied by banks consistently because the potential homebuyer forgot to add something or did something wrong. It’s not their fault though. They just lacked the proper understanding of how the process works.
1. Mistakes in Your Credit Report
As a home buyer, the first step when you buy a house should actually be pulling your credit report. This can usually be done through a credit checking website but you can also request a free credit report from the three major credit bureaus Equifax, Experian, and TransUnion.
When you get this report, you should check for any mistakes. Make sure all of the debts and credit marks are from you. Also, ensure that past accounts have been marked accurately. If your credit score isn’t very high, you may need to spend time building it up before attempting to apply.
2. Changes to Employment
Mortgages are denied a lot of times because there have been changes in the employment area. Lenders like to see a consistent job history, at least 2 years with one company. That’s why consistently changing jobs when you’re trying to buy a house looks back to the lender. If you’re looking to change jobs, it’s best to wait until after you have closed on your home.
Another innocent mistake is applying for more credit or an additional loan. Credit inquiries can hurt your credit score. Plus, if a lender sees you’re taking out a lot of applications for money, this may change the terms they offer you on your mortgage.
3. Only Applying With One Lender
One of the most common mistakes homebuyers make is not getting a quote from more than one lender. The process to get a quote can sometimes be time-consuming. This can lead to you taking the first quote you get so you can just get it over with. However, this can literally cost you thousands of dollars.
It’s best to check different lenders and get quotes from them to find the best deal. If you get denied by one bank or lender go to another one. The easiest way to do this is by using a broker. A broker can spend their time and use their expertise to get you a better mortgage deal.
4. Getting Mortgage Pre-Qualification Instead of a Mortgage Pre-Approval
A lot of home buyers will get a pre-qualified mortgage and assume they are ready to go. However, getting a mortgage pre-approval should come first before you start looking for your new home. A mortgage pre-qualification is just a basic overview and does not guarantee anything.
However, a mortgage pre-approval is an in-depth review that results in a written commitment for financing up to a certain amount. This cannot only help you avoid disappointment, but it can also show sellers you are serious buyers.
5. Missing Opportunities to Apply for Federal Loans and Grants
Many states, some cities, and even the federal government provide first-time buyer loans and grant programs. Most people think they won’t qualify for this or they don’t even know about it at all. Even if you are not approved, you have the option to apply for one of the few government-insured loan programs.
These include the Federal Housing Administration (FHA loans), the U.S. Department of Veterans Affairs (VA loans), and the U.S. Department of Agriculture (USDA loans). It’s important to at least look into the opportunity as it might provide some financial assistance when buying a home.
6. Too Small or Too Large of a Down Payment
One of the most regrettable and common ways mortgage applications are denied is by making too large or too small of a down payment. You may be asking yourself how you can make too much of a down payment. Basically, if you’re draining all of your savings to make the payment, it’s not a financially sound idea.
At the same time, when first-time homebuyers were surveyed about the experience, most admit they regret not waiting longer so they could have had a larger down payment. The standard 20% down payment is now considered to be too high. The median is now reported to be 6% for first-time buyers. However, there are some programs that offer zero down or as low as 3.5%. A broker can help you navigate the right down payment, offer crucial advice, and help find the right lender for you.