Landing a mortgage can be easier than you think, but you still have to get past some hurdles before the loan is approved. There are a lot of seemingly little things that can trip up your quest to buy a home. Here are a few of them.
1. Extra Income
The Patriot Act prevents lenders from working with drug dealers, money launderers or terrorists. Obviously, 99.9% of today’s mortgage borrowers are on the up-and-up. However, this does not change the fact that mortgage lenders will need to verify every single dollar in your bank account. Any deposit in excess of $200 beyond your income must be explained, documented and sourced. So if you’re planning to transfer money from one account to another, you will need to produce a paper trail on those funds.
2. Opening & Closing Credit Accounts
Let’s say, for example, that you have a credit card with a monthly payment of $150 per month and a personal loan that costs $75 per month. All in all, your payments tally out to $225 per month. Sounds manageable, right? Well, those debts are the basis for how your lender will determine whether you qualify for a mortgage. If you take on more debt or close a credit account, this can adversely affect your credit score, which makes you look riskier in lenders’ eyes — and could jeopardize your mortgage.
3. The Soft Credit Inquiry
Lenders pull your credit at the beginning of the mortgage loan process to identify your liabilities and determine how they’re going to structure the mortgage given your income and monthly expenses. However, most borrowers don’t know that lenders also perform a soft credit inquiry before you draw up the final loan documents. The soft credit pull will not ding your credit, but it will provide a reading on any liabilities that may have changed since your original application (see the example above). If that’s the case, there’s a chance you may be denied for the loan. (You can learn more about getting a mortgage fully approved here.)
Do yourself a favor and take every piece of advice and tip your mortgage company offers. A trusted — and experienced — mortgage professional (full disclosure: I am one) can easily explain the ins and outs of the little things that can turn into big things if they’re not properly handled.
And remember, before you apply for any mortgage financing, it’s a good idea to check your credit score first. That’s because your financial standing is used by lenders to determine whether you qualify for certain terms and conditions. You can get a free summary of your credit report by visiting Credit.com.
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