Common Mistakes People Make When Applying for a Mortgage

Today, most homeowners still acquire properties through a mortgage loan. Studies show that over three-quarters of home purchase applications are approved. That leaves around 25% faulty and erroneous ones. 

The good news is that you can avoid most of the mistakes people make when applying for a mortgage. Being aware of missteps can not only improve your prospects but also speed up the process. A mortgage calculator can help you steer clear of potential pitfalls.

Limited or No Down Payment

Perhaps the most common mistake is making a very small down payment or none at all. Yes, it can seem hard to put 20% on a $300,000 home down, but it's always best for the down payment to be substantial – at least enough to do away with the need for mortgage insurance. If you face foreclosure due to not being able to make mortgage payments, the insurance provider protects the lender from a certain percentage of losses. 

Insurance adds at least a few hundred dollars to your monthly payment. Normally, it takes a few years to build equity in an amount necessary to reduce or cancel the insurance. A down payment of at least a fifth of the home's total value is your safest bet.

Documentation Delays

It is not rare for a homeowner to only copy or scan the front page of a bank statement. You must provide the back page if the statement is double-sided. Even blank pages or pages containing mainly fine print will be needed. The urge to be done with paperwork as soon as possible leads to a risk of delays, ultimately resulting in an offer's cancelation. This may be the worst possible case, but it is far from unheard of.   

Not Checking Your Score

A loan applicant must check their credit score and rating well in advance. A timely check can help one avoid unpleasant surprises down the line. The three main credit reporting bureaus – Transunion, Experian, and Equifax – all offer free credit report copies. You can also get a free report on AnnualCreditReport.com, a government site. 

These checks will not reveal your score. To see it, you'll be charged extra. However, the check might show credit issues you were previously unaware of. It's possible to get such problems resolved easily and quickly, thereby avoiding the risk of a delay. 

Making a Big Purchase Before Closing

The excitement that surrounds the purchase of a property often brings people to splurge on new furniture, new appliances, or even a new car. However, most lenders will look at your credit one more time before the deal is sealed. In case new inquiries from different loan providers emerge, you will have to explain why these establishments checked your credit and sign the respective documentation. You will also have to make a statement on whether the inquiry led to a new purchase or to an extension of additional credit. 

What was APR Again? 

There are two different numbers, which are associated with interest rates: the annual percentage rate (APR) and the mortgage rate. Being able to grasp the difference is critical. Most people focus on the mortgage rate. This rate is important because your mortgage payments will be calculated by it. However, the mortgage's other costs are closely connected to the APR. These costs include but are not limited to insurance premiums, loan origination fees, and loan processing fees. Essentially, the real cost of the loan is the APR.