7 Costly Money Mistakes to Avoid 6 Months Before Applying for a Mortgage

2. Making Large Purchases on Credit

In the months leading up to your mortgage application, it's essential to avoid making significant purchases on credit. This can increase your debt-to-income ratio, making you a less attractive borrower.

Tips for Managing Purchases

- Delay Big Buys: Postpone any large purchases, such as cars or expensive electronics, until after your mortgage is secured.

3. Quitting or Changing Jobs

Lenders look for stability in your employment history. A sudden job change or unemployment can raise red flags, potentially jeopardizing your mortgage application.

Employment Stability Tips

- Stay Put: If possible, remain in your current position for at least six months before applying for a mortgage.

4. Neglecting to Save for a Down Payment

When buying a house, a substantial down payment not only reduces your mortgage amount but also demonstrates financial responsibility to lenders.

Down Payment Strategies

- Set a Savings Goal: Determine how much you need for a down payment and create a savings plan to reach that target.

5. Closing Old Credit Accounts

While it might seem like a good idea to close old credit accounts, doing so can negatively impact your credit score by reducing your overall credit history length and utilization ratio.

Managing Credit Accounts

- Keep Accounts Open: Maintain old accounts open, especially those with no annual fees, to preserve your credit history.

6. Applying for New Credit

Each time you apply for new credit, a hard inquiry is made on your credit report, which can temporarily lower your credit score. Multiple inquiries can signal financial instability to lenders.

Avoiding Unnecessary Inquiries

- Refrain from New Applications: Hold off on opening new credit accounts or loans in the months leading up to your mortgage application.

7. Forgetting to Budget for Closing Costs

Many homebuyers underestimate the additional costs associated with buying a house, such as closing costs, which can range from 2% to 5% of the loan amount.

Planning for Closing Costs

- Research Costs: Get an estimate of potential closing costs early in the process and include them in your budget.

FAQ

Q: How far in advance should I start preparing for a mortgage application?

A: It's advisable to start preparing at least 6-12 months in advance to ensure your finances are in order and your credit score is optimized.

Q: What is the ideal credit score for a mortgage application?

A: While it varies by lender, a score of 700 or above is generally considered good and can help you secure better interest rates. However, some government-backed loans may accept scores as low as 580.

Q: How much should I save for a down payment?

A: A standard down payment is 20% of the home's purchase price, which can help you avoid private mortgage insurance (PMI). However, some loans allow for smaller down payments.

By avoiding these costly mistakes and following our mortgage tips, you'll be well on your way to securing a favorable home loan. With careful planning and financial discipline, buying a house can be a smooth and rewarding experience.