When you apply for a mortgage loan, you're really asking a lender to take a big chance on you. As one of the largest investments the average person makes, lenders must have full confidence in both your ability and willingness to repay. There are several things you can do to diminish this confidence. Make certain you aren't making this mistake.
Don't Buy a Car First
Avoid buying a car just before you plan to purchase a home. Sure, this will increase your debt load, but this isn't the only thing lenders look at; they will also use this to assess your priorities. If you purchase the car before the home, the bank may believe that the car is your biggest priority.
So, in the event you suffer a financial setback, it may be more important to you to maintain the vehicle than your mortgage. Get approved for the loan, get comfortable with your new home and then get the car.
Don't Charge Your Vacation
Some people will use their credit card to pay for their big vacation every year and then take the months after to pay it off. If you've got a zero-interest rate or an awesome rewards program – this can make sense. However, for lenders, substantial and recent increases in your debt load and credit card usage can make you look risky.
The greater your debt-to-income ratio, the amount of debt you have compared to the amount of money you earn, the less favorable you are to lenders. If you're planning a vacation, or any other large purchase, pay with cash and avoid using your credit cards.
Don't Open or Close Any Accounts
Once you know that you plan to purchase a home soon, make sure you aren't opening or closing any of your credit card accounts. Lenders want to look at longevity in terms of your credit history. Each time you open a new credit card, you basically restart your average credit age, making it shorter, not to mention the fact that you put a new inquiry on your report.
When you close an account, especially if it's an older one, you also shorten your credit history and depending on the balance on your remaining cards, you might even increase your credit card utilization percentage. Go on a credit hiatus and leave everything as it is.
When it comes to getting approved for a mortgage, keep the less is more mantra in mind. The less you do in terms of changes to your finances, the better. If you have more questions, reach out to lenders at companies like Dave Schell at Guaranteed Rate Mortgage.
