As kids we got told what NOT to do all the time. “Don’t eat sugar before bed,” “don’t play video games until you finish your homework.” The list goes on. Once we become adults we think we are free and no one can tell us what we can’t do anymore! Unfortunately, this is not always the case. Especially when it comes to the biggest financial decision in your life: buying your first house.
Although there are plenty of situations to avoid when applying for a mortgage, we want to inform our readers about the common mistakes people make when applying for a mortgage and how to avoid them:
1. Make a major purchase like furniture, appliances, jewelry, vehicles or vacations
After the 2008 housing bust, lending standards have become a lot more conservative. There are certain ratios that borrowers have to meet if they want to get approved for a mortgage. The most common is the Debt to Income Ratio or DTI. This ratio shows how much debt you have relative to income.
It all depends on the loan program, but the DTI usually can’t exceed 43%.
Making a major purchase prior to closing on your home could dramatically affect everything from monthly payments, to interest rates or even prevent you from qualifying for your mortgage! Even though you were previously approved, this is a surprise nobody wants on their closing day.
Save the major purchases for after your closing day!
2. Change or quit your job
Maybe your boss has scolded you more than once this week and you just want to take the leap and quit! Hold on a sec, it is worth waiting to tell off your boss until after you close on your home.
“You change to a higher paying job and have a month’s worth of pay stubs that evidence your income and employment.”
If the first month of working at your new job is completed prior to the date your purchase contract ends, then it should not affect your closing.
There you have it! Preventing these two common mistakes while applying for a mortgage will dramatically increase your chances of closing on your home on time. Remember, choosing the right mortgage professional is imperative. Just like people, no mortgage is created equal.