Three Mistakes To Avoid When Applying For A Home Loan
Purchasing your first house is exciting, but it also means you will be getting your first mortgage. You may feel secure in your credit history, income, and savings, but there are things that can go wrong if you aren't careful. Knowing the following mistakes can help you avoid them so you can successfully secure your home loan.
#1: Waiting to check your credit
Just because you know you have no late or missing payments doesn't mean your credit report doesn't show any. You need to check your credit at least six months before applying for a home loan. Sometimes things get reported wrong or there may be a small bill on your credit you forgot about. Pull reports from all three of the major credit bureaus – Experian, Equifax, and Transunion – since they do not all always show the same thing. You can contest any wrong information that shows on these reports by following the instructions provided with the report from each bureau. Although a small error on your credit may not stop you from qualifying for your mortgage, it could lead to higher interest rates.
#2: Opening new lines of credit
Few things can make an underwriter more nervous about providing a loan than someone that seems to be acquiring a lot of credit quickly. Wait until after you have purchased your home to open up new lines of credit or buy a new car. It's also a good idea to minimize use of your existing lines of credit. Underwriters look at your utilization rate, which is the balance you are carrying on credit cards, lines of credit and in loans. Generally, you are a better loan candidate if you have low utilization. If all of your lines of credit are topped out, there could be some concern that you have overextended yourself financially.
#3: Changing careers
If possible, wait for a career change until after you have closed on your home. Many mortgage companies require that you have been working in the same field (not for the same employer) for at least two years prior to getting the loan, simply because this shows that your income stream is stable. If you switch to an entirely new field, there can be some concern that the new income source may not be as stable. There is some leeway in this. For example, you can often manage to switch industries if your basic job title is the same, such as switching from a managerial position in one industry to a managerial position in another. You may also be able to do a career switch without penalty if you are a recent graduate, especially if you graduated into a field with high job prospects, like engineering.
For more help, talk to a home loans specialist in your area.