Do you know that even simple mistakes can block mortgage approvals?
If you are looking for a home for the first time or an upgrade from your current one, then a mortgage approval process is most likely in your future. If you are not in the position to pay cash right now, a mortgage makes the dream of homeownership accessible to you.
Applicants who are financially qualified and have been preparing in advance have maximized their chances of mortgage approval. However, even the most careful of buyers can sometimes make simple mistakes that can destroy the deal.
Thankfully, Adam, the Controller of the accounting department at Marketplace Homes, shared some of the top mistakes that buyers make to jeopardize mortgage approvals.
When you’re well prepared and informed, you can increase your chances of loan approval. So what are the mistakes that people often make and how can you avoid them? Here are our top 10 pearls of wisdom to share.
Top 10 Mistakes That Block Mortgage Approvals
You have prepared your finances and are ready to take the plunge and buy a home. Now that your goal is so near, do not loosen your self-discipline now. Avoid these 10 simple mistakes to give your loan officer no barriers to approving your loan.
#1 Your Top Dollar Is Too High.
Solution: Pick a reasonable top dollar.
It’s risky to approve a loan that squeaks by one’s comfort zone. If you have two incomes, you can even base your loan off one income so that if anything unforeseen happens, you can still confidently pay your mortgage. Higher top dollars are less likely to be approved if your income is barely enough to cover the mortgage plus extra bills.
#2: Opening Too Many Accounts.
Solution: Use restraint. Don’t open or close credit card accounts frequently.
When you’re checking out at your favorite clothing store and the cashier asks you to open a credit card to get 20% off, just say no. That immediate savings you’re getting on sweaters will turn into regret when the new credit account lowers your credit score during the approval process.
- P.S. Adam also recommends never closing your credit accounts, since a low credit utilization rate is beneficial. This figure is calculated by dividing your current debt balance by total available credit. A good utilization rate is below 30%.
#3: Too Much Cash In And Out in The Bank.
Solution: Limit your bank activity, especially after you apply for a loan.
Extremes are red flags to lenders. If your bank accounts have massive fluctuations in numbers, it can make you look less reliable. Instead, try to not do too much cash in or out during the loan approval process.
#4: Making Large Purchases During The Loan Application Phase.
Solution: Please don’t buy a car, or a boat, or anything large that involves a credit check.
Big purchases like these include a hard credit check (if you need financing) but also involve significant bank activity. Either way, big purchases hurt you. Don’t do it!
#5: You Quit Your Job During Application Season.
Solution: Don’t quit your job after you apply for a loan.
If a new venture is calling you, exercise some patience. Right now, it’s time to put your head over your feelings and keep your income stream active. Even though some people saved their deal by getting a new job immediately and reporting their income, instability like this unravels lender confidence.
#6: You Don’t Have Enough Cash in The Bank.
Solution: Put cash in the bank for months prior to establish a history of having enough money.
A large cash balance increases loan odds. Have it in the bank for at least 3 months prior to the loan approval. This is because lenders typically want statements that reach back to three months worth of bank activity. If you can establish a history of large bank balances beyond that, even better. Unfortunately, having lots of cash around the house isn’t helpful – unless you can pay all cash, but it still needs to be in the bank to prove that you do have the money.
#7: Your Credit Score Is Too Low.
Solution: Work on your credit score before applying for a loan.
Credit scores are influenced by a variety of factors such as age of credit, payment history, number of accounts, used credit, and much more. Improve your credit score to get above the 700s for the best possible qualification chances. For more information, this article explains some effective ways to increase your score.
#8: Your Debt-to-Income Ratio Is Too High for Mortgage Approvals.
Solution: Lower your DTI before applying.
Your debt-to-income ratio is a critical financial fitness factor in the lender’s eyes. Aim for the lowest possible ratio to increase your monthly margin. This shows lenders that you have the ability to handle a mortgage payment.
#9: You Make Significant Changes to Your Investment Accounts.
Solution: Don’t play around with your investment accounts during the loan period.
It’s hard to hold back when you see an opportunity to sell high on a stock, but too much cash in and out in this territory can also hurt your prospects. Try to make small movements to not alarm your lender. Closing some positions might be necessary to help with the next step, but also be aware of potential tax burdens from your recognized gains.
#10: You Offer No Down Payment or a Low Down Payment.
Solution: Get more cash to close through saving more, personal loans, or freeing equity.
The larger the down payment, the easier it is to get approved. This proves your readiness and can eliminate PMI while lowering your mortgage interest rate. Free equity through our Sell & Stay program is a great way to get money to close while erasing the home sale contingency. Talk about a win-win!
While You Get Qualified for Mortgage Approvals, Explore Our Solutions
When you follow these easy steps, you can gradually build a financial profile that is strong enough to qualify for a mortgage. If you need assistance with getting cash to eliminate home sale contingencies or to make your down payment competitive, then our special incentive programs can help you. Contact us today to find out more.
Local Broker Information: https://www.
Alicia Persson is a real estate content/SEO writer at Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined Marketplace, she was a freelance writer for 7 years, leading to a specialization in real estate and home living content for boutique digital marketing agencies. During her writing years, she learned the basics of SEO and gained experience writing for many different clients, making her highly versatile at creating diverse content.
She is a proud University of Virginia master’s graduate and enjoyed her undergraduate years at the University of Mary Washington. When Alicia is not writing, she plays keytar and sings in a local 90’s rock cover band, or she spends time with her amazing family.