Part 1 of 4
Mortgage approval is one of the most crucial factors in the home buying process and can be one of the most stressful elements buyers experiences. A frequent and unfortunate reality is that buyers will obtain a letter of pre-approval from their lender and proceed to find a home they love that is in their price range. They have their offer accepted and the home under contract. Suddenly, hours before closing, it feels like the rug is being yanked out from under them and they cannot purchase their home because their mortgage is denied. This blog will be the first in a four part series detailing some common mortgage pitfalls recently chronicled by Fox News’ Adam Verwymeren. Learn how to avoid falling prey to these issues so you can sail through the mortgage process and into the new home of your dreams.
Most homebuyers are aware that credit is an important component of qualifying for a home loan. Credit, along with your income and expenses, and funds available for down payment, dictate the amount you can qualify to spend on a home, as well your interest rate. When a lender uses the term “credit” they are referring to two closely related things: your credit score and your debt-to-income ratio. A credit is a three-digit score generated to reflect on a consumer’s potential creditworthiness. Debt to income ratio is a ratio of how much money you have going out each in month in expenses relative to the amount you have coming in as income. Lenders have very strict thresholds for what they consider to be an acceptable debt-to-income ratio. When the debt portion of the ratio creeps even a hair over their approved parameter, a loan can be denied.
Any adverse changes in credit situation between the time of loan pre-approval and loan closing can potentially kill a loan. These changes can manifest in several different ways. Your credit score can be lowered. The easiest and most common way for this to happen can be my missing or making a late payment on a car, credit card or any account that reports to the national credit bureaus. Any purchases made on credit can also impact your debt to income ratio. While a large purchase like a car is obvious and easy to avoid even smaller purchases, like a week’s worth of groceries put on a credit card, can push people that are already towing the debt to income line into a loan denial.
It is important to be mindful of these factors while trying to qualify for and close a home loan. Remember that a “pre-approval” is not a guarantee; there will still be a lengthy qualification process. Avoid negatively altering your credit situation and stay in touch with your lender to help stay on track, preventing any unnecessary mortgage qualification pitfalls.
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Tagged as: Home Buying Info
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