What not to do When Applying for a Mortgage

I learned a long time ago that “common sense is NOT a common practice.” This is especially the case during the emotional time that surrounds buying a home, when people tend to do the same non-commonsensical things. Here are a few that I’ve seen through my career that have delayed (and even killed) deals:

  1. Don’t deposit cash into your bank accounts. Lenders need to source your money and cash is not really traceable. Small, explainable deposits are fine, but getting $10,000 from your parents as a gift in cash is not. Discuss the proper way to track your assets with your loan officer.
  2. Don’t make any large purchases like a new car or a bunch of new furniture. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios… higher ratios make for riskier loans… and some qualified borrowers no longer qualify.
  3. Don’t co-sign other loans for anyone. When you co-sign, you are obligated. With that obligation comes higher ratios as well. Even if you swear you won’t be making payments, the lender will be counting the payment against you.
  4. Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Frankly, before you even transfer money between accounts, talk to your loan officer.
  5. Don’t apply for new credit. It doesn’t matter whether it’s a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgage credit card, auto, etc.) your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
  6. Don’t close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more approvable. WRONG. A major component of your score is your length and depth credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. Any blip in income, assets, or credit should be reviewed and executed in a way to keep your application in the most positive light.

Why Do Mortgage Rates Matter?

In real estate we are always talking about mortgage rates but you may be wondering why do incremental changes in a percentage really matter. We wanted to break down mortgage rates for you in order to better explain how capitalizing on a lower rate can help you afford a higher priced home. Let’s use a few example numbers to demonstrate. For instance, you may be shopping for a home around $400,000 and want to put 20% down. Our example interest rate to start will be 3.5%. For the sake of ease let’s assume there is a 1% property tax rate, which costs $4,000 per year and that your homeowners insurance will cost you $1,200 per year. With these numbers you would end up putting down $80,000 at closing with a monthly payment of $1910. This amount includes your homeowners insurance at $140 per month, taxes at $333 per month and your principal and interest at $1,437 per month.

Now let’s change only one variable, your interest rate. Let’s drop it to 3% and see what changes. Doing so drops your monthly payment $1,822 with principal and interest accounting for $1,349 (remember nothing else changed). Now let’s say that you were limited to a monthly payment of $1,910 from our original example. If the interest rate drops from 3.5% to 3% you go from being able to afford a home at $400,000 to $426,000. That is quite a large jump without having to increase your income or the amount of your monthly payment, and that is why mortgage rates matter. They have some of the largest impact on your purchasing power as a home buyer. Interest rates right now are at historic lows, which as demonstrated above means that you can afford more house now than you could have last year. Contact us today and find out how you can take advantage of this once in a lifetime opportunity.