Avoid the most costly mistakes when applying for a mortgage

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Published Date 8/4/2023

Preparing yourself to buy a home is kind of like preparing yourself for college. You choose the school that interests you, send out applications to attend there, and hope for the best. When you buy a home, you want to be an attractive loan candidate, navigating the mortgage process, and planning for the future.

However, homebuyers can make a number of mistakes that can cost them the price of admission. Realtor.com’s Craig Donofrio names the biggies, the first of which is choosing any old mortgage. “You don’t want to be saddled for even a short period of time with the wrong mortgage,” says Donofrio. “Investigate all of your options, and then you need to lay your choices side-by-side and do the math—making sure you have emergency savings for worst-case scenarios.” He goes on to recommend loan shopping several different lenders and using a mortgage calculator to fine-tune estimates.

Next, there is a difference between knowing you’re ready to buy and knowing it’s a done deal with the lender. It’s the difference between a pre-qualification and a pre-approval. “When you’re pre-qualified, the lender is simply giving you an estimate about how much you can borrow based on the information you’ve provided,” says Donofrio. “When you’re pre-approved, the lender has verified everything you’ve provided and is offering to lend you up to a given amount at current interest rates—under certain conditions.” Pre-approval is the gold standard, but it’s still not a guarantee, since the lender’s final commitment is subject to an appraisal satisfactory to the lender, a clear title to the property, a last-minute credit check, and other verifications.

Speaking of pre-approvals, many borrowers fail to understand that the snapshot of how you look when you receive that happy news should be literally, virtually, and in reality — frozen in time. Don’t blink and don’t move before the flash goes off. No new cars, living room furniture or new credit cards before escrow closes. Even if you pay your bills on time, lenders tend to focus just as much on how much credit you have available to you—that is, your debt-to-income ratio—as they do on timeliness. Postpone any big-ticket purchases until after you buy your house, even if you’re using savings since the funds you reported to them are the assets they are using to approve you.

Along those same lines, don’t forget that lenders like stability. Keep the job you have for at least a year or two before applying for a mortgage, and it’s even more important to keep your job throughout the mortgage process. “If you’re looking to switch jobs, wait until after you’ve closed the deal,” says Donofrio.

Your credit score is like your SAT score for college. Knowing it inside and out is like memorizing the answers to the test itself. “Thoroughly check your credit report for any possible mistakes. You can order a free credit report from each of the big three credit report agencies—Equifax, TransUnion and Experian—once a year,” says Donofrio. “If you see a mistake, dispute it. If your credit is bad, that’s okay: just work on repairing it before you apply for a mortgage.”

Lying on a mortgage application is like lying to a potential employer only worse because it’s your future home that is at stake. Exaggerating your income on a mortgage application or putting down other untruths can be a federal offense. “If a lender finds out, they can make your loan due and payable. And while bad loan officers may stretch the truth to get a client approved, it’s the borrowers who end up paying the price.

The sin of omission is just as damaging. The worst thing you can do is ignore phone calls and letters from your lender when you are behind on your payments or forget to mention you have a student loan or obligation you never mentioned. “While lenders have many options at their disposal to help keep borrowers from losing their homes to foreclosure, they can’t do anything for you unless they can talk to you about your difficulties,” says Donofrio.

That old saying, “Inspect what you expect” doesn’t ring more true than when you buy a home. “Failing to make your purchase contingent on a satisfactory home inspection could be a costly mistake,” he says. “Good home inspectors examine houses from stem to stern. They’ll be able to tell you whether the roof or basement leaks, whether the mechanical systems are in good shape and how long the appliances should last.”

Realtor, TBWS

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