5 Easy Mortgage Mistakes: How to Avoid Them
July 21st, 2010You have probably heard at least one mortgage horror story from friends, family, or neighbors–or even lived one or two yourself. What you likely do not hear is how often such horror stories are due to mistakes or neglect by the borrowers themselves. No matter how much information you get from a free mortgage calculator, missteps in the documentation process can cost you your mortgage rate–and possibly even your entire loan approval.
Here are five easy ways to complicate, delay, or even disqualify your mortgage application:
1. “Why Do You Need That?”
During the course of your mortgage application, your lender will ask for many documents, including seemingly unusual items such as the following:
Such requests provide evidence to support the representations you make in your loan application–and ensure that you qualify for the loan rate and terms which you seek.
The problem arises if you delay or refuse to pass along that information, for whatever reason. That delays your mortgage approval, possibly putting the entire loan at risk. There is a difference between asking out of curiosity why something is needed–and actively seeking to avoid providing the information at all.
There is absolutely enough paperwork in the mortgage approval process: NO ONE will ask for more unless it proves necessary. Unless you simply cannot obtain the requested information yourself, work with your mortgage originator to provide what is requested as soon as possible.
2. “I’ll Get It to You Tomorrow….”
Although your loan originator should of course treat with you with the professionalism and personal interest you deserve, it should not come as a shock to you to know that you are not the only mortgage loan applicant they–and other loan process personnel–are currently serving.
With record low mortgage rates, homeowners across the country are using a free mortgage refinance calculator to see how much money they can save by refinancing to current mortgage rates. With so many people submitting applications for refinance mortgages, many mortgage industry pipelines are bursting, from intake through funding.
Having your mortgage professional unnecessarily wait a day, a week, or more to get requested paperwork from you puts you further away from closing–and further down their loan pipeline. The more loans that get between you and the closing table, the greater at risk you are of missing your rate lock period.
Bottom line: When you are asked to provide some information from your lender or broker, do so right away.
3. New Credit
One sure way to bring your mortgage process to a screaming halt and send it back to “Go” is to have new credit accounts or substantially increased balances on your credit report. Even an inquiry or two may cause delay, as underwriters must then investigate whether you actually opened a new credit card at the home improvement store or drove a new car off the lot–and whether or how that new credit may alter your loan approval.
This is because lenders are following a new policy from Fannie Mae for Freddie Mac and FHA loans: They are pulling pre-funding credit reports to ensure you have not quietly increased your debt burden since your initial application. Since such borrowing often includes new appliances or furniture for your new home, you may have to wait until after your mortgage closes to purchase such items.
Check with your mortgage lender before making any substantial credit purchases, to ensure that you do not exceed your approved debt limits.
4. New Money
One significant issue that has created delays in the mortgage process in the last few years is ‘new money’ in applicant bank accounts. If your bank statements reveals any large or unusual deposits to the loan underwriter, your lender will ask, “Where did the money come from?” You must then prove that it is not borrowed, but, instead, that it is a gift or otherwise approved. Otherwise, such funds may not be counted toward your down payment, closing costs, or financial reserves.
Before you go deposit that stack of chips from a successful weekend in Vegas or Atlantic City into your bank account, check with your mortgage lender about when or how to do so. They will likely have a preferred procedure to properly document the source of those funds.
5. Over-Estimated Property Value
Many mortgage rates are put at risk because loan rates are locked based on a home owner’s estimate of their castle’s value–only to see the official appraisal come in significantly lower. When this happens, the assumptions underlying your loan application must be altered, potentially disqualifying your loan single-handedly.
When using a free mortgage refinance calculator and communicating with your mortgage professional, be conservative in the estimate of your home’s value until you have reason to believe otherwise. Ask what changes may occur in the rate and/or cost of the mortgage if the appraisal comes in at a different value. Be sensible, be reasonable, and remember: Your opinion of your home is higher than anyone else’s–especially an appraiser’s.
Stress-Free Borrowing
If, after consulting a free mortgage calculator, you decide that the time is right to take advantage of incredibly low mortgage rates, remember to avoid these five easy loan mistakes. This will help keep your mortgage application process on track, on-time, and as stress-free as possible.
