Getting a house can be exciting, but getting a mortgage generally isn’t as much fun. You may be concerned about how to get preapproved for a home loan, and that’s a pretty natural concern. You don’t want to make mistakes that can jeopardize your preapproval, but most of those worries can be avoided. The people who struggle with preapproval often make mistakes because they don’t understand the process, and that can make things very frustrating for them. If you avoid these six mistakes, you’ll be on your way to the preapproval you’re looking for.
1). Ignoring your credit report.
Don’t be like so many people who visit a lender for preapproval, only to be turned away because their credit is bad. Check your official credit report, and see what’s really on there. If there are any mistakes, now is the time to get them corrected so they don’t stop you from getting your home loan preapproval. You’ll also want to see if there are negative items on your report. If you find some and they aren’t mistakes, see if there’s anything you can do to minimize their impact. If you have debts in collection, for example, you may have to pay them off before you can get approved to buy a home. Understanding what’s on your credit report is an important first step to a loan preapproval.
2). Not getting documents to the lender.
Lenders need proof of who you are and how much money you make. They may ask you for various types of documents to prove those things, and anything else they need to know. If your lender asks for something for a preapproval, be sure to get it to them as quickly as possible. They can’t give you an answer without the documentation they need, so you’ll be holding up the process if you’re not getting them proper information in a timely manner. You don’t want to lose out on the great house you have your eye on because you can’t get a preapproval letter to put in with your offer. Talking to the lender up front and asking them specifically what they need can help. They may have a checklist they can give you, so you can bring everything in at one time.
3). Purchasing big ticket items.
When you plan on getting preapproved for a loan, you should avoid buying anything big, or getting new credit cards or other loans. That can change how your credit looks, and can make your suspect in the eyes of a lender. If you can hold off on buying that new car or furniture on credit, or avoid taking out any kind of loan or applying for a credit card, that would be a good idea. As a rule, don’t do any of those things until after your home buying transaction has completely closed. If you spend money on credit before the closing, you could change your credit profile enough to get you denied, so it’s not just about the preapproval. Deals have fallen apart at the closing table, too.
4). Not evaluating your debt to income ratio.
Your debt to income ratio (DTI) is a measure of how much you owe against how much you make. That’s important, because you’re only able to borrow money that will take your DTI up to a certain percentage of your income. The more money you make the more you can borrow, all other things being equal. If you already have a lot of debt, though, you won’t be able to get preapproved for as big of a mortgage. Paying off some of your debt before you apply to get preapproved can help, because it allows you to qualify for a larger mortgage payment and can help you get into the house you really want to buy.
5). Not being realistic in your house hunting endeavors.
Before you head out to see your lender and get a preapproval, assess what you’re considering buying. Is the house you want to purchase realistic on your income? Even if you can get approved for it, would it be stretching your budget too much? There’s no reason you have to ask for the maximum amount of money you can be preapproved for. You also don’t have to borrow as much as the bank will loan you. When you consider your finances carefully, you may decide that a house with a little bit lower price tag is going to be the better choice. If you know how much you want to spend, ask for a preapproval letter for that amount, instead of the full amount the bank says you can borrow.
6). Not paying your bills on time.
By buying a home you’re making a serious commitment to a mortgage, often for 30 years. Paying that mortgage on time is very important, and to help you get preapproved the bank is going to want to see that your other bills are getting paid on time, as well. If you pay late on your debts or your utility bills, you may find that you have a more difficult time with preapproval. Be very careful, especially in the months leading up to when you plan to apply. Always pay things on time, so you don’t end up with negative marks on your credit and bad reports from utility companies and other places. The better you handle your money, the more likely you’ll be to get preapproved.
2 Point Highlight
You don’t want to make mistakes that can jeopardize your preapproval, but most of those worries can be avoided.
When you plan on getting preapproved for a loan, you should avoid buying anything big, or getting new credit cards or other loans.
