Home Loan Insurance

Trying to get a mortgage? One mistake too many Americans make before they even apply

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Mortgage rates are still very low (compare today’s mortgage rates here), and some experts expect them to soon rise, which is prompting plenty of Americans to think about buying a home. But prepare yourself: The mortgage process can take anywhere from 30 days to several months, requires a ton of documentation, and on top of that, being approved for a loan is far from a foolproof process. That said, it’s all doable and can even go smoothly, especially if you avoid some of the most common mortgage mistakes when applying for a mortgage.

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Mistake No. 1: You didn’t check your credit report before applying for a mortgageGreg McBride, chief financial analyst at Bankrate, says the first mistake people make happens before they even apply for the mortgage. “It’s failing to check your credit reports for possible errors. Incorrect information of a derogatory nature can torpedo your credit score and your chances of getting approved,” says McBride. One simple and free way to check your credit score: sign up for CreditKarma; you can get your free credit report from AnnualCreditReport.com.

Mistake No. 2: You didn’t shop around enough Not shopping around among lenders is a major mistake that can cost thousands of dollars. “On a $300,000 loan, missing out on a rate that is half a percentage point lower will cost you nearly $1,000 in additional interest every year,” says McBride. That’s why he recommends getting quotes from at least three lenders. And don’t just compare interest rates: look also at fees, terms, and more. “Shopping around can also yield significant savings on closing costs too,” says McBride.(You can find the lenders with the best rates here.) 

Mistake No. 3: You got lured in by the lower rates of an ARM, but it’s not quite the right choice for you“There are instances where ARMs may indeed be the optimal choice, but the difference between ARM and fixed rates is scant today, so even in those instances, there’s little upside to taking the risk of an ARM, especially when you can lock in fixed rates below 3%,” says McBride.  That said, in general, adjustable-rate mortgages (ARM) may make sense for borrowers who only plan on living in a home for a few years, or who know they’ll be paying off the loan within a few years.(You can find the lenders with the best rates on fixed-rate and ARMs here.) 

Mistake No. 4: You forgot to unfreeze your credit when applying for the loanForgetting to unlock or unfreeze your credit if it’s locked or frozen prior to starting a loan application can delay the mortgage process. “It’s important to understand the timeframe that your credit will be unlocked or unfrozen so your credit can be pulled up front. If you have placed a freeze on your credit to control how the credit agency can provide your data, the lender will not be able to pull your credit history and score as part of the assessment of your credit worthiness,” says Alfredo Padilla, a spokesperson for Wells Fargo home lending. Credit-thawing can take anywhere from a few seconds to a few days, but as long as it’s thawed prior to submitting an application, lenders will be able to view your credit rating. 

Mistake No. 5: You spent freely, or changed jobs, while waiting for loan approvalHomebuyers beware: “Don’t go out and buy a bunch of furniture on credit before your loan is closed. Don’t buy a car or quit your job or alter your financial status before closing as that approval could get yanked out from under you,” McBride says.

Mistake No. 6: You have irregular activity in your bank accountLarge deposits that come in, and aren’t part of your regular deposit activity, can raise red flags to a lender, who might think you borrowed that money. Even if this is just you putting your own cash into your account, the lender will likely ask questions, which could delay your mortgage.

Mistake No. 7: You went the paper route without realizing the potential downsidesThere are advantages, including potentially more privacy, about deciding to submit all your paperwork as actual paper, rather than allowing the mortgage company to process information online, even if it’s via a secure, dedicated web address.  But Padilla says if you opt out of the digital path, you’ll need to manually submit documentation for your income, employment, asset accounts and liability accounts. “This may require you to download account statements and submit them to the lender through electronic, mail or other manual methods,” says Padilla — all of which can be time consuming and more error prone.

Mistake No. 8: You assumed buying discount points were always the way to goDiscount points, or mortgage points, are basically like pre-paid interest; you pay a lender upfront for discount points so you can then lower your interest rate and therefore your monthly payments. Many people assume this is the smartest way to go, but that actually depends on how long you stay in the house. Here’s a calculator that can help you figure out whether you should buy points.(You can find the lenders with the best rates here.)

Mistake No. 9: You change how you want to hold the title late in the gameIf you’re adding or removing anyone from the title or deed of trust, make sure to tell your lender immediately. “It’s best to tell your lender early in the process exactly how you wish the title or deed of trust to read so as not to delay mortgage approval. Let them know which names and spelling and whether it’s a sole ownership, tenants in common, joint tenancy or some other legal arrangement,” Padilla says.

Also see: 7 thing you need to do now to get ready to buy a house