7 Biggest Mistakes Buyers Make Before Qualifying for a Loan

If you are thinking of buying a home within the next two years, the following are the six most common mistakes buyers make before qualifying for a loan. If you can avoid these mistakes qualifying for a house loan easily for little cost can be a slam dunk.

Late or No Bill Payment:

Credit is everything to the average American looking to buy a home.  If you have poor credit, unpaid bills, late bills, outstanding accounts, liens, or collections on your credit you will have a difficult time getting loan approval.  I'm not saying impossible, but difficult. Usually a lender will ask for a variety of things in order to compensate for poor credit which include: more money down, a complete paper trail of bank accounts, they will give you a higher interest rate, or approve you for a lesser amount of money.  If you currently have poor credit work with a credit recovery service or try on your own to get it cleaned up so you can buy a house.

Spending on the Little Stuff:

When you get a raise or accumulate some savings, you may find yourself confronted by an innate instinct of modern civilized men and women... the desire to spend money.  It begins simply, by going out to restaurants, then accelerates to purchasing clothing, electronic gadgets. When you get that urge, just take the money you would have spent and put it in a savings account, before you know it you will have more than enough for a down payment or new furniture for your house.

Buying a Car:

North Americans have a special fondness for the automobile; you may be tempted to buy a "brand new car."  If you're married or ambitious, a few months later your thoughts eventually turn toward buying your own home.  Or a move-up home, if you are already a homeowner.  Next, you contact a loan officer to get pre-qualified for a mortgage loan.  You state your desired price and how much you can put down.  You provide your income and may even supply pay stubs and W-2 forms.  The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet).  "If only you didn't have this car payment...".  If you can't put a significant amount of cash down on the car and your car payment is a majority of your paycheck, chances are you can't afford it.  A house gives you a return on investment with equity and appreciation.  Whereas, a car depreciates the moment you drive it off the car lot.  You choose where you want to investment your money.  But, if you can barely make your car payment chances are you will not qualify for a home.

Large Financed Purchases:

To extend the car explanation even further these large purchases include furniture, appliances, electronic equipment, jewelry, vacations, and expensive weddings.  Basically, anything that you can't pay cash for, that you have to take out a line of credit and finance may be a determining factor in approving for a home loan.  Of course, there are unexpected situations in life that can't be avoided, but if it's not a necessity, don't buy it until after you have closed on a home.  It's much easier to qualify for a car loan or other large purchases after purchasing a home than vice versa.

Don't Move Money Around:

When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious. Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.  So leave your money where it is until you talk to a loan officer.  Oh...don't change banks, either.

Don't Change Jobs:

So many times people will decide to take a new job right as they are about to apply for a house loan or in the middle of the purchase of a home.  Please...Don't do that.  Buy the house first, then change your job, or put off buying a house for two months after starting a job.  Most banks will decline funding if right before purchasing a home, the buyer changes jobs.  The reason is the salary could be less, the stability and security of the job is in question, and the affordability of the home with a new job can also be a lenders concern.  If the job change also comes with an increase of wages the lender is a bit more lenient but it's a red flag that a buyer should try to avoid all together.  Lenders like to see a two years of employment in the same company or in the same field of occupation.

Don't Throw Away Valuable Financial Paperwork:

Most accountants will say keep track of bank statements, investment paperwork, W-2's, Pay Stubs, and Tax Records for 7 years, so DON'T throw them away.  Lenders usually require the last two years of the paper work mentioned above, without this paperwork one will have a hard time approving for a loan.