One of the hardest parts of getting a mortgage is interpreting advice from all the parties involved: mortgage lender, real estate agent, insurer, attorney or escrow officer, tax adviser, financial adviser, plus your family, friends and colleagues. Since your mortgage lender is involved in all parts of a financed home purchase, an ace lender can be your best guide.
Here are the five common mistakes that can cause hiccups in your mortgage process. Ask your mortgage lender to help you steer clear of them.
1. Excluding details of your financial profile
A good mortgage lender will begin by reviewing your basic personal and contact information, employment and residence history, income, assets and debts.
Simple, right? Only if you answer every question, whether it’s in person or on a form. If you don’t provide absolutely every detail about your financial profile, it can throw off the entire loan process.
2. Not providing every single piece of documentation
Next your lender will ask for detailed documentation for your entire profile, including:
- 30 days of pay stubs
- Two years of tax returns and W-2s
- Year-to-date business financial statements if you’re self-employed
- Two months of statements for all asset accounts
- Explanations and paper trails of all deposits (and often withdrawals) above $1,000
- A home insurance quote with adequate coverage
- Full financials on any other homes or businesses you own
If one single page of any piece of documentation is missing, you’ll be asked to provide it. If your income is commissioned or variable in any way, you must authorize your lender to verify income directly with current and past employers.
The lender will also run your credit, which can reveal employers, addresses, debts and other credit inquiries that you didn’t disclose. If new information comes to light, you’ll be required to explain and document all of it.
3. Confusing approval with pre-approval
Misinterpreting approval status kills deals and can take years off your life. So remember this and live long in your new home: get your loan approved by an underwriter before you write any offer to buy a home.
Getting a mortgage “pre-approved” means you’ve talked to a lender (#1 above), or you may have even provided some documents (#2 above) and been told your profile looks good — but make no mistake, this isn’t a loan approval.
Be sure you ask to get “underwriting approved” and obtain a formal loan commitment in writing. Anything short of this means your profile has been evaluated, but your actual loan approval doesn’t officially begin until your loan agent submits your file to an underwriter.
4. Not sharing home offer details with the lender
The purchase contract — or offer you write on a home — dictates critical transaction timing milestones like how many days you have to secure loan approval and how many days you have to close.
Your real estate agent will take the lead here, but make sure your lender and agent are in sync, because the lender must provide these critical milestone dates that your agent writes into the contract.
If you miss either of these dates in your contract, you risk losing your initial deposit on the home. The only way your lender can provide accurate timelines is if they’ve executed all the steps above properly.
5. Being unrealistic or uninformed about rates
When a seller accepts your offer, you’re in contract to buy your home and ready to lock a rate for your mortgage. You can’t lock before you’re in contract because a rate lock runs with a borrower and a property.
This means you’re subject to rate market movement until you’re in contract, and rates change throughout each day as bond markets trade. Rates are priced based on how long they’re locked, so a shorter lock (such as 15 or 30 days) has a lower rate than a longer lock (60 days, for example).
To avoid rate surprises, ask your lender to quote rate locks based on your closing timeline. And don’t forget that if you’re cutting it close on qualifying and rates rise, the resulting cost increase can kill your loan approval. Ensure your lender is accounting for the possibility of higher rates so your loan approval remains valid if rates rise while you’re home shopping.
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