Common Mortgage Mistakes: Do’s and Don'ts when Getting a Mortgage

Buying a home and securing a mortgage can be an overwhelming experience, especially for first-time homebuyers. When getting a mortgage for the first time, there are 3 main components you need to be careful with: your credit, your income, and your assets. In this blog, we will explore the do's and don'ts and walk you through the most common mistakes that homebuyers make when getting a mortgage for the first time.

Assets: Handle with Care

One of the most frequent mistakes homebuyers make is mishandling their assets. While it may seem harmless to move money around or borrow from friends, it can lead to complications during the closing process. Avoid depositing cash, taking cash advances on credit cards, or making significant financial changes. Disclose all sources of money to your loan officer, as surprises at the closing table can be detrimental to moving forward with your house. 

Many experts in the field will tell you to borrow money from family or friends to buy your first home. This can cause major issues at the closing table when looking over your finances. 

First, when obtaining a mortgage from a lender, we’re going to look over your financial situation with a magnifying glass. If you’ve borrowed funds from family or friends, you need to disclose to us where the money came from. You should also understand that there is a difference between a “loan” and a “gift;” if the money is a gift, it could be subject to certain tax implications. And if it’s a loan, it needs to be documented, and could factor into your debt-to-income ratio during the mortgage application process.

Credit: Guard Your Score

Aside from moving money around or making big purchases, another cause for concern at the closing table is large purchases on a credit card, or changes in credit score. Your credit score plays a pivotal role in mortgage approval, and for first time buyers, your credit score is pivotal.

For example, imagine that you have excellent credit. Just before closing, imagine that you use your credit card to buy all the furniture for your new home. This sudden increase in debt could jeopardize the entire mortgage approval– and your credit score will drop nearly a hundred points. 

Learn the lesson now: don't make large purchases or open new credit lines during the mortgage process.

Income: Stability is Key

If there is one thing you take away from this article, it’s that you shouldn’t change jobs if you can help it during the mortgage process. Changing jobs during the mortgage application process is a red flag for lenders. Job stability is crucial when it comes to securing a mortgage. If your employment situation changes, be transparent with your lender. 

Last year, two clients of mine faced unexpected job loss, but fortunately in both cases they let me know early. I was able to help them secure the loan and, in one case, even assisted them in finding new employment.

In the world of mortgages, being a first-time homebuyer adds another layer of complexity. The excitement of homeownership should not overshadow the importance of financial responsibility during the application process.

Additional Insights

Understanding current mortgage trends and exploring ways to optimize your mortgage is essential. Consider researching mortgage rates today, and staying informed about any shifts in the market. Exploring tools such as the reducing mortgage term calculator can provide insights into lowering your monthly payments without refinancing. Familiarize yourself with the mortgage lender association to stay connected with industry standards.

For those with FHA loans, there may be opportunities to lower mortgage payments. If you’re interested in strategies to reduce your mortgage payment without refinancing, send me a message.

Remember, the journey to homeownership is a significant milestone, and the right knowledge can make the process smoother. By avoiding common mistakes and staying informed, first-time homebuyers can confidently navigate the complex world of mortgages and achieve their dream of owning a home. Ready to get started? Let’s talk.

Feel like you need more information? Download my free guide here.