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Thursday, December 12, 2013

Mortgage 101: 4 problems that could potentially ruin your mortgage

The headlines are all over the news.  Lending requirements are getting more strict and even home buyers with good credit and lots of reserves may find themselves in a bind when last minute loan application issues arise.  

However, these last minute issues can be avoided by taking a few simple precautions.  
To ensure that there are no problems in your loan process, follow these four pieces of advice:

1. Don't make any drastic career changes.  
Part of the approval process for a home mortgage involves the stability of your job and income.  Any big career move you make could jeopardize your ability to buy a home.  Worse case scenario, your lender declines the loan.  And at best, your loan process will be delayed until you can demonstrate that your new job is stable and provides enough income to balance out your mortgage debt.  If you have to change jobs, try to stay within your same industry and keep the change to a minimum. 

2. Steer clear of any sizeable purchases.
This should be an obvious one.  Why would you want to buy a new car at the same time you're about to be obligated to a monthly mortgage payment? None the less, banks and lenders have been known to decline mortgages when the homebuyer purchases a new car or other major purchase.  If you absolutely have to make a big purchase, wait until you sign that dotted line for your loan.  This goes for anything you may finance or even pay in cash.  It's likely you will be required to provide updated bank statements just before closing and if your reserves have been depleted, you can bet that will raise a red flag.  

3. Plan on a last-minute credit check.  
This goes back to my last point.  Your lender will likely check your credit right before closing.  Therefore, if you miss any credit or loan payments, you may be putting your mortgage on the line.  Even applying for a new credit account will result in an inquiry on your credit report, and you will likely have to write a letter and explain the scenario to your lender.  Just because you got preapproved initially, does not mean you can mess around with your credit during the process.  You're not officially approved for a home mortgage until you sign your final papers.  

4. Pay attention to closing cost adjustments.
Some home buyers put every last bit of money they have into their mortgage down payment and don't leave any room for closing costs and other unexpected expenses.  This could potentially be a huge mistake.  Closing costs can range upwards of 3% of the loan amount and some numbers can change up to the date that you receive your final HUD Settlement statement.  If you don't have extra cash set aside for last minute occurences, you could lose the home.  

For help on better understanding the mortgage process and how to get approved, check out the rest of our Mortgage 101 articles found on this blog.  

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