Buying a home in Batesville, Arkansas or the surrounding area? Avoiding common mistakes during the mortgage process can make the difference between a smooth closing and a stressful delay. As a local Batesville realtor, Sarah Perkins shares these 10 important tips to help you protect your credit, strengthen your loan application, and confidently move forward with your new home purchase in Independence County.
Taking on additional debt before applying for a mortgage doesn't make much sense. Your debt-to-income ratio – or how much debt you’re paying off each month in comparison to how much money you’re making – is just one factor that lenders look at when reviewing your mortgage application. If it’s above a certain threshold (typically 43%), you’ll be considered a risky borrower.
Your credit score says a lot about you. It lets a lender know whether you’re fiscally responsible and indicates the likelihood that you’ll be able to pay off your debts in the future. Since it’s often one of the criteria that lenders use when approving homebuyers, it’s a good idea to check your score before filling out an application for a home loan.
Since credit scores matter to lenders, it’s best to work on improving your score and protecting it before you try to get a mortgage. That means you don’t want to do anything that could hurt your score, like missing bill payment deadlines. Even one late payment can cost you points. Many lenders use the FICO scoring model, and missing payments is a big red flag.
Exceeding your credit card limit or swiping your card too often will hurt your credit score as well. One factor that affects your score is your credit utilization ratio (your debt-to-credit ratio). Keep it low — ideally under 30%. If you’re in the market for a new home, it’s best to avoid big balances on your cards.
Closing an account might sound like a good idea if you’re mired in debt, but it doesn’t always help your credit score. Reducing available credit can raise your debt-to-credit ratio, which may hurt your mortgage application. Sometimes keeping accounts open is the smarter move until after you’ve closed on your home.
Making a career change right before or during the mortgage process can raise red flags. Lenders want to see a stable income history. If you switch jobs before you have pay stubs from your new position, it could hurt your ability to qualify for a loan.
Buying something big — like a new car or appliances — could derail your mortgage approval. Not only does it drain cash reserves needed for your down payment, but financing a purchase can raise your debt-to-credit ratio, lowering your credit score in the process.
If you’re getting married, remember that your spouse’s credit history may be considered in the mortgage process. If your partner has poor credit, it could lower your chances of getting approved or affect the terms of your loan.
When you co-sign, you take on responsibility for someone else’s debt. If they fall behind, it shows up on your credit report and could hurt your mortgage chances. Lenders see co-signed loans as additional liabilities you may have to cover.
Large, undocumented deposits into your bank account right before applying for a mortgage can cause problems. Lenders want to see consistent funds that have been in your account for at least two months. Keep deposits transparent and well-documented.