According to the National Association of Realtors, parents gifting money to their children to help purchase a first home is a common experience. Gifting money is a type of down payment assistance that can help them realize their dreams of homeownership.
6 Common mortgage mistakes and how to avoid them
Buying a home can be intimidating, but it doesn’t have to be! With a great lender on your team and avoiding these six most common mortgage mistakes, you can get through the process relatively stress-free.
Paying off debt right before an application
While paying off debt is a great feeling, try to avoid paying off things like your student loans right before you apply for a mortgage. It sounds counterintuitive, but paying off a loan or closing a paid-off credit card may cause your credit score to drop. This is because several factors go into calculating your credit score and paying off a debt reduces your credit mix, length of credit history, and credit utilization.
So before you apply for a mortgage loan, pull your credit report at least six months before to review for errors. If any are found, dispute them with the credit bureau.
Applying for new lines of credit
Avoid taking out new lines of credit or making large purchases like a car before applying for a mortgage. Lenders will pull your credit report for review and don’t want to see that you’ve made purchases that could affect your ability to get a loan.
Instead, save large purchases and new lines of credit until after you’ve closed on your home.
Not doing your research
Before applying for a mortgage, do your research. Take the time to go to different mortgage companies and banks to understand what programs are available, as well as current mortgage rates. Don’t miss out on the best deal for you and your situation.
Guild Mortgage offers a Lock and Shop program* which allows you to lock in your rate for 120 days, even if rates go up in the meantime as you shop for a home. You can take advantage of a one-time float down option if rates go down.
Not getting pre-approved
We’ve said it many times: When you’re getting ready to start applying for a mortgage, make sure that you get pre-approved! Pre-approval shows sellers that you have the backing of a lender and may increase your chance of your offer being accepted.
Stretching your budget too thin
Even when you get pre-approved for a mortgage loan, remember to stick to your budget and avoid stretching it too thin. In addition to your monthly mortgage payments after purchase, you will have to pay out-of-pocket for closing costs and other fees.
Changing up jobs
In general, lenders like to see that you’ve been at a steady job for at least two years. So if you’re thinking about changing jobs before buying a new home, you may want to hold off. But that’s not to say that if the opportunity for a better job comes up you shouldn’t take it. Just be ready to explain the situation to your lender.
For most people, buying a home is the largest investment of their lives. Understanding a few of the roadblocks will help ensure a smoother process. By taking these actions while you are preparing will improve your chances for qualifying and finding a home you will love. Contact us today to answer any questions about the home financing process and to get prequalified.
*Upfront lock-in fee required. Click here for more information.The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.