As a homebuyer, the last thing you want is anything putting you at risk of closing on your home. There are many people who are simply unable to purchase a home without a mortgage, and if you’re someone who needs a mortgage… it’s really important to properly prepare so that you’re a good candidate for getting a home loan.
FIVE THINGS TO AVOID
1} TAKING ON EXTRA DEBT
Taking on extra debt prior to applying for a mortgage is a really bad idea. Your debt-to-income (DTI) ratio, or how much debt you’re paying off in relation to how much money you’re making, is one major factor that a lender looks at when reviewing your mortgage application.
2} IGNORING YOUR CREDIT SCORES
Your credit scores say a lot about you. They show a lender whether you’re fiscally responsible, and they also indicate the likelihood that you’ll be able to pay off your future debts. Since it’s one of the significant criteria that a lender frequently uses when they approve a homebuyer for a mortgage, it’s certainly wise to check your score prior to filling out an application for a home loan.
3} FALLING BEHIND ON BILLS
Since your credit scores are of great importance to a mortgage lender, it’s wise to work on improving your scores and protecting them before you attempt to obtain a mortgage. In a nutshell, this means you do not want to do anything that would potentially put strikes against your scores (such as missing bill payment deadlines). More often than not, a mortgage lender will use the FICO scoring model. And, should you submit a check following the date that any one of your bills is due… this one negative action is enough to knock off quite a few points from your credit scores. If your history shows that you do not pay your bills on time, the mortgage lender will likely assume that you’ll make late mortgage payments too.
4} REACHING CREDIT CARD LIMITS
You’ll want to be especially careful about the number of times you swipe your credit cards. As you may know, there are particular times when it’s far too easy to exceed their limits. Going over your credit card limits will undoubtedly crush your credit scores. Consider one of the things that has a substantial impact on your credit scores. This is your credit utilization ratio (a.k.a. your debt-to-credit ratio). This is the amount of credit you’ve used relative to your credit line. For instance, let’s just say that you charged $5,000 to one of your credit cards, and you have an $8,000 credit limit on this card… your debt-to-credit ratio is now a whopping 62.5%. And, if you’re in the market for a new home… it’s vital that you keep your DTCR as low as possible.
5} CLOSING CREDIT CARD ACCOUNTS
If you’re bogged down with credit card debt, you may reason that closing an account or two will better your credit scores. Yet, if you’re in need of a mortgage… doing this thing will not help you in the least. By ditching credit cards and decreasing your level of available credit, your debt-to-credit (DTC) ratio may very well skyrocket. And, as an unfortunate consequence… your credit scores could sink like the Titanic.