If you are looking for a new home, there are a few things not to do when applying for a mortgage. Knowing what to stay away from, will improve your chances of being approved. Plus, you’ll receive the best rate on a home loan. Read on to discover the top FAQs we get asked by our borrowers.
Do Late Credit Card Payments Affect Mortgage Application?
Yes, when you are applying for a mortgage, the lender will pull your credit report, and they will view late payments as a red flag — especially any late payments within the last 24 months. Any missed payments will also affect your credit score. Accounts that enter collections will be another red flag. Late payments can mean not getting approved. The underwriter is focusing on the last two years’ credit history.
Does My Credit Card Balance Affect a Mortgage Application?
Yes, the higher the balance, the higher your credit utilization. This will negatively affect your credit score, and another metric that the mortgage lender will look at is your Debt to Income Ratio (DTI). The higher your DTI, the more of a risk you are and, therefore, the higher rate you will be offered.
Does an Overdraft Affect Your Mortgage Application?
Your lender will look at your recent bank statements. If you have a single overdraft a while back, you pay it, and any overdraft fee, the effect may be minimal. But you will need to supply a written explanation of why the overdraft happened.
This is a red flag if you have several recent overdrafts, even if they are paid. And worse still, if you were unable to pay any of the overdrafts and they went to collections, you probably won’t be approved. In that case, you’ll have to work on your credit and have a clean history for two years.
What Happens if I Change Jobs During a Mortgage Application?
A job change can affect your mortgage approval. Your circumstances will determine the effect. You are probably ok if your new job has equal or higher pay and a strong income history.
You should let your loan officer know about a job change before making a move, if possible.
Does Length of Employment Affect Mortgage Application?
Yes, like the above, the lender wants to see a strong employment history. They will look at your past two years of tax returns. If you change jobs regularly, then this is a warning sign. Any gaps older than two years will not affect you. But a gap of more than a month or two will be another warning sign within the last two years.
There are major do’s and don’ts during the mortgage process. Knowing what they are and avoiding the pitfalls can help you get approved. The professionals at Homestead are here every step of the way to help you make your dreams of homeownership come true.
Homestead Financial Mortgage’s low-interest home loans are some of the best in the states we serve. We’re licensed in Arkansas, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Missouri, Montana, Ohio, Oklahoma, Tennessee, Texas, and Wisconsin.
Contact us today to learn more about the home loan products we offer that are right for you.