I'm a regular member and contributor to many first-time homebuyer boards, groups and forums. On this page of the Ultimate Homebuyer Course, you will see the top 11 home loan mistakes I've seen shared that may delay or cause an adverse event in your home purchase process.
The truth is, there's someone out there right now making one of these loan mistakes that is likely costing them their opportunity to buy a home. By anticipating and avoiding these 11 home loan mistakes, you can set yourself up for a successful home purchase and better loan closing experience.
What mistakes should I avoid when home shopping? Additional guides and resources are available under the "Purchasing a Home Education" and "Tutorials and Home Loan Guides" sections of the navigation menu on this page. Here's my guide on top mistakes to avoid when home shopping.
Assuming All Mortgage Programs are the Same
A Conventional loan is likely the most common loan program out there when you read this, but it doesn't necessarily mean that this option is right for everyone.
Is a 15-year, 20-year or 30-year Conventional mortgage the best? Am I better to go Conventional vs FHA? Do I need down payment assistance? Do I have enough funds to close? Which program gives me the absolute lowest payment? Which loan program has cancelable mortgage insurance and which stays for the life of the loan?
These are just a few questions I hear on a daily basis. During the homebuyer purchase process, we will have a call to discuss the basics of your financial history. From this call, I'll get to work checking to see which home loan solutions you will likely qualify for based on your purchase goals.
From there, I will write you a very detailed loan scenario email that explains your best options, compares rates, overall estimated payment and I'll also include my recommendation(s).
You are in luck as this is my absolute favorite thing to do in my job as your lifetime Loan Officer. You'll learn the pros and cons of the various loan programs recommended, see which option has the lowest overall payment and so much more.
Changing Jobs / Sporadic Job History
A buyer that has had a sporadic job history of that has numerous different jobs over the past couple of years may have a harder time getting approved for a home loan, unless the jobs are in a similar line of work.
Certain loan programs also have additional qualification requirements when you have gaps of employment of 6 months or more. Depending on your loan program, this may require you to be at your current job for a set period of time before we can use that income as qualifying income for your loan.
Your loan qualification also considers your ability to pay into the future. Changing jobs frequently, current verified employment and other factors are considered during your loan approval process.
Applying for Additional Credit
This guide is general knowledge only. Scott Buehler and Guild Mortgage do not provide credit repair services. The below information is provided for general knowledge only. Please consult with a credit repair specialist before making decisions that will impact your credit.
Are you buying a home sooner than later? Try to avoid applying for or adding additional lines of credit where possible. Many believe that opening up new lines of credit is harmless as long as they don't run up balances. In fact, adding new lines of credit may impact your credit scores.
Another consideration, all inquiries seen on your credit report must be accounted for during the loan process. These will require a letter of explanation that includes what the inquiry was for, if a new debt has occurred and if yes, additional review including documentation so that it may be added to your liabilities.
Your credit is also reviewed near the end of your home loan. Should a review discover new inquiries have occurred, it may delay your closing. Any new inquiries will require investigation including an additional approval review to ensure the loan still qualifies.
While going through the home loan process, consider speaking to your loan officer before making a decision that might impact your credit or qualification.
Allowing Tradelines to Fall Behind
Your credit history and score have a huge impact on a buyer's ability to obtain a home loan and may impact the mortgage interest rate.
One of the first steps of the homebuying process is getting preapproved for a mortgage. The process of getting prequalified or preapproved involves a credit pull to review your credit history.
When your tradelines, such as credit cards, shows a history of falling behind, you may experience difficulty getting approved for a mortgage. Depending on your current credit scores, you may also need to utilize the services of a credit repair professional.
It is extremely important that homebuyers are aware of their overall credit picture. Ignoring credit history and scores is one of the worst loan mistakes made by first-time homebuyers.
Forgetting to Lock Your Mortgage Rate
As you go through the homebuying process, you will get to the point where you have an accepted offer to purchase a home. During this stage of your loan, you will have the ability to lock in the current interest rate or to float the rate and lock in later.
Many external factors can cause mortgage interest rates to suddenly increase (or decrease). Consider locking in your rate after going under contract to buy a home as early as possible so you'll have predictable mortgage terms throughout the home loan process.
There's been times when buyers have decided to float the rate during the home loan process only to have interest rates leap 0.5% or more due to an unpredictable major newsworthy event that caused the stock and bond markets to heavily react.
When you float, you are at the mercy of the market and external factors you don't control. By locking in, you are saying "I'm happy with the rate, I'm locking in to protect myself during the loan process, I realize rates could get better but it isn't worth the risk."
Should rates plummet after closing on your home, you also have access to refinancing your mortgage but additional loan fees will likely apply.
Abnormal Spending on Credit Cards
As most are aware, excessive or abnormal spending on credit cards can hurt your credit score. During a home loan, however, excessive spending could cause your debt-to-income ratio to increase beyond qualifying limits, making you ineligible for your home purchase.
Where possible, maintain predictable and stable spending habits or consider reducing your overall monthly obligations.
As always, before making a decision that may impact your mortgage qualification, speak to me if you've chosen me as your loan officer and let's discuss your plans.
Taking a Test Drive at a Car Dealership
Many dealerships will require a credit check before they will allow you to take a test drive of a vehicle. Even if you aren't considering a purchase, this will place one or multiple credit inquiries on your credit history that may negatively impact your credit scores.
I've seen online examples of interested car buyers go to a dealership where they placed multiple credit inquiries in attempt to find better interest rates. Even though they decided not to purchase, their credit scores were heavily impacted for several months.
Waiting to Shop for Homeowner's Insurance
The moment you have an accepted offer to purchase a home, consider shopping for Homeowner's Insurance!
If you wait until the last minute, you do yourself a disservice by not allowing yourself time to compare multiple providers to find the absolute best deal.
Remember, the more tasks completed early on in the home loan process means less is required near the end, providing you with a better, less stressful mortgage experience.
Homeowner's Insurance savings tip: When making calls to various homeowner's insurance companies, consider calling your auto insurance carrier. They may be able to save you money through a bundle discount!
Assuming You Can Use Actual Cash for Closing
Cash is king! … except when closing on a home. The vast majority of home loan programs do not allow actual cash to be used for "Cash to Close." Even though the term "Cash to Close" is commonly used in the mortgage industry to show how much is needed to close your loan, please understand this generally means "verified funds needed to close."
For the majority of clients, "mattress money" that suddenly appears as a bank deposit cannot be used unless we can determine the source of funds through a paper trail.
Example: You just sold a vehicle and received a significant amount of cash that you've deposited and want to use to as cash to close. You will need to establish your ownership of that vehicle, establish the value of the vehicle via an independent reputable source, provide a bill of sale or statement from purchaser and a receipt of the proceeds such as a deposit slip. Additional documentation on top of all this may also be required.
Accepting a gift from immediate family? Speak to your loan officer before accepting the funds! Additional requirements apply and for most transactions, having the gift wired direct to title near closing is the preferred method.
Not Understanding the Impact of Large Bank Deposits
Large deposits in your bank account that are intended to be used for closing will require explanation and verification to the establish source of funds.
If lenders suddenly see unsourced money coming in or going out, it may look as though you received a loan, which would impact your debt-to-income ratio.
Transparent deposits such as employment bonuses, child support, IRS tax refunds and similar aren't much cause for worry but may still require an explanation letter.
To keep it simple, when using funds for closing, those funds will need full verification and documentation.
Consolidating Funds Without Consult
Moving large sums of money from various bank accounts to consolidate funds will also require additional documentation to show a paper trail of those funds.
In other words, we will need to see funds withdrawn from one bank account and deposited into the other bank account. Typically this is done through bank statements or through a teller-stamped transaction history printout at the bank.
Consolidating funds with Scott Buehler as your Loan Officer. My advice for my clients is to either consolidate funds early on in the loan process or leave them separate and submit multiple wires to title near the end of the loan. We need 2 (sometimes 3, ask) months bank statements for each bank account being used for cash to close.
When nearing the final stages of your home loan, consider talking to your Loan Officer to see their recommendation and best practices for dealing with cash to close funds when it is split between multiple bank accounts.
Find these loan mistakes helpful to know? Hopefully these top loan mistakes to avoid provide some clarity as you go through the home loan process. Consider using Scott as your Loan Officer for an exceptional, professional home loan experience!
I'm looking forward to helping you through your journey! Call or text me at (435) 590-1019 or submit an email and I'll be in touch shortly.