Whether you’re applying for your first mortgage or refinancing your home, here are some common mortgage mistakes you do not want to make.
Mistake #1: Writing off too many things if you’re self-employed
If you’re self-employed, there are several tax deductions associated with your business that you can take advantage of to reduce your taxable income. However, when mortgage lenders examine your tax returns for proof of income, they are looking at your income after the business expenses have been deducted. Therefore, they are seeing an amount that is much lower than what you are actually bringing home. This can decrease the loan amount you qualify for, or worse, cause you to get rejected.
Mistake #2: Neglecting to review your credit score
Before you begin your home search, you need to review your credit score. At least six months prior, visit AnnualCreditReport.com to get free copies of your credit report from the three major reporting bureaus: Experian, Equifax and TransUnion. These agencies are required to give you a free copy of your credit report each year. Review the reports and ensure there are no errors in your credit score. If you need to increase your credit score before applying for a mortgage loan, click here for some useful tips.
Mistake #3: Not getting pre-approved before being your home search
To avoid falling in love with a home you won’t be able to buy, it’s important that you get pre-approved by the bank before embarking on your home search. This can also give you the upper hand if there are multiple interested buyers. A seller will be more likely to choose a bid from an interested buyer who has mortgage pre-approval over someone who has not begun the process.
Mistake #4: Lacking the cash for a down payment
Not having a down payment can reduce your chances of getting a mortgage. Since the housing market crash, mortgage lenders are wary of lending to people who don’t have the money for a down payment. Also, looking back at the housing market crash lasting from 2007 to 2009, many homeowners found themselves owing more money than their property was actually worth. To avoid this from happening to you, you should make a down payment, even if it’s just 10 or 20%. If you are scrambling to secure the money for a down payment, you can seller finance your current property and create a mortgage note. You can then sell that mortgage note to a loan acquisition firm specializing in buying mortgage notes, and receive a sizeable return on your investment that can be applied to your down payment on a new home.