Friday, September 19, 2014 / by Tom Nickley
Homebuyers make some serious money mistakes, especially when it's their first time. There's a lot more to getting a mortgage than just filling out an application and handing over tax returns and pay stubs. Since most people don't pay cash for their house, it's safe to assume that financing will be in-order.
But even with insanely low interest rates, and mortgages being approved with as little as five to ten percent down, there's another side to financing a home purchase, and it's not a very pretty picture. When an individual or couple get pre-qualified, it only means the lender is ballparking what that person or couple can afford. Then, there's the pre-approval process. That's a figure which is based on actual, demonstrable numbers, calculated after reviewing the applicant's financials.
And last but not least, there's the last-minute review a first time home buyer undergoes, when the lender pulls a second credit report only days before the scheduled closing. That's right, many lenders actually pull a borrower's credit report a second time just to make sure the applicant hasn't taken on a lot more debt or is missing revolving credit line payments.
What Homebuyers Don't Know Can Hurt Them
The truth is, when a person wants to buy a house, and need financing, he or she necessarily brings in other parties into the picture. And those parties have a financial stake in the matter. Of course, those other parties will act in their own best interest. From the seller fighting for the highest price with the least amount of concessions to the lender requiring a bigger down payment or pay some points.
First-time homebuyers almost always make a few mistakes when buying their home. Perhaps they pay too much, choose the wrong type of mortgage or neglect to budget for needed home improvements. Lenders qualify buyers based on their incomes and debt-to-income ratios without considering how much the borrowers spend on items such as transportation, savings, food and other necessities. --Bank Rate.com
In addition, there's an appraiser involved and that professional works for the lender, not the buyer. Therefore, it's in the appraiser's best interest to get the value right, even if it means blowing up the borrower's dreams. Last but not least there are other players, like first time home buyer programs, which have their own criteria borrowers must meet.
The bottom line is, no matter the buyer's wants and needs, they won't be a consideration for all the other parties involved in the purchase. Which means buyers should be careful not to derail their financing.
Money Mistakes Buyers Often Make
Financing is a risky business and lenders want that risk minimized as much as possible. What's unfortunate is homebuyers often make big money mistakes that can cost them more cash upfront or, in the most extreme cases, make them ineligible for financing. Here's the largest mistakes people purchasing a home make the most:
- Opening new lines of credit. This is referred to as "potential debt" and it says to lenders the borrower is planning to make purchases which will decrease the borrower's debt-to-income ratio.
- Depositing large sums of money. Sure, banks like to see big deposits, but at least two months prior to closing. It's called "seasoning" and it makes the deal taste sweeter.
- Changing employment. Some homebuyers make the mistake of changing employers prior to closing. To the lender, it completely changes the borrower's profile.
- Changing banking institutions. A stable banking history is just as important as a stable employment history.
- Lying on a mortgage application. It might seem harmless to leave out a few details but it's not only unethical, it's fraud.
Wrapping it up is the fact homebuyers should not spend any of the cash set aside for closing costs. And last but not least, cosigning for a loan for a friend or family member rounds out the list.
If you are looking to purchase a home in Orlando area or in one of the nearby localities, then give us a call for a free consultation. We'll tell you about the area, what you can expect, and listen to your wants and needs. We'll find you a great home, with all of your must-haves, and, one that fits your budget and caters to your lifestyle.
If you need to get in contact with a trusted lender, let us know. We have great relationships with quality lenders that will have your best interest in mind and who will provide you top-notch service in a timely manner, and without the guessing.