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February 22, 2018
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Real Estate & Business

Scott Sheldon
10 ways you could hurt your credit while getting a home loan
February 16, 2018

Getting a mortgage is not an effortless process, it’s just not. The loan process today is an extremely compliant and very bureaucratic process that requires proof of one’s ability to repay that mortgage. Following are ten things you will want to avoid when seeking a home mortgage loan…

1. Refusal to provide documentation. The three ingredients to making a loan is cash, credit and income and you must have all three. Contrary to widespread myth letting the lender pull a copy of your credit report and providing the supporting documentation as well as an application does not commit you to working with that lender nor does it hurt your credit score.

2. Showing big losses on your tax return. Just because you can deduct expenses does not automatically mean that you should. When you write off expenses that comes off your qualifiable income which is what the lender uses to determine you’re borrowing ability. Talk to a lender and a tax professional and figure out a prudent strategy if you’re in this financial situation.

3. Not having enough of a down payment. To purchase a house in most markets for example in Sonoma County California, you need a down payment of at least $25,000. With the average priced home being over $600,000 you need some skin in the game. Granted there are mortgage loan programs out there such as down payment assistance and several others that do not require a down payment at all. However, because you might qualify for a low-down payment mortgage or a no down payment mortgage does not automatically mean your offer will get accepted in the marketplace as sellers of homes usually want offers from buyers with some form of cash down payment.

4. Carrying monthly debts can heavily way against your borrowing power. For every

dollar of monthly payments it requires $2 of income to offset that obligation. For example if you have a $500 car payment it’s $1,000 per month of income to offset it. Thinking about buying a new car? Take the payment on that proposed vehicle purchase and ask your employer for double that car payment in the form of a raise, then your ability to borrow will not be adversely affected. Alternatively, paying off debts can beneficiary drive your borrowing power and can give you more choices in control over your money. Eliminate the obligations that have the biggest monthly payments with the lowest balances.

5. You’re not showing enough income. As stated earlier you must have a blend of cash credit and income. No amount of cash with a perfect credit score will offset the need to have income. It’s an equal balance of all three. You must show enough monthly income to offset the expense. The ways to change your income is get a raise, get a cosigner, pay off debt, put more money down, or change loan programs.

6. Failure to keep up with your current mortgage if you have one. If you have a mortgage currently and you’re in the process of buying another home or refinancing the mortgage you currently have continue to make the payment. This especially goes when refinancing. When you refinance your mortgage at the end when that loan is paid off you usually will skip a payment for approximately 30 days. It is critical however during that process to keep up with your mortgage payment as though you normally would until that mortgage is paid off.

7. Disputing credit accounts. If you have any accounts of any kind that are currently in dispute status you will not be getting a mortgage unless you take those accounts out of dispute. To be clear remove the accounts out of dispute right or wrong or indifferent or the account must be removed and taken out of dispute as it may affect the credit score and the lender cannot run automated underwriting which is required on nearly every residential mortgage loan. It provides them an inaccurate read on your financial picture if you have an account in dispute.

8. Freezing your credit. If you have any credit holds in place such as one with Experian for example. You want to permanently remove the credit dispute for the full 30 days for your mortgage process. Most mortgage lenders cannot fund a mortgage for a borrower who has two credit scores because the third credit score is electively frozen.

9. Non-responsiveness to a mortgage lender is one of the worst things you can do for your mortgage process. Providing documentation in a timely manner is the number one thing you can do to make sure that the mortgage you’re applying for advances in a timely manner. Taking days or weeks to provide supporting financial documentation can result in documentation expiring, your loan approval expiring and lock extensions which can make the cost of your mortgage loan rise.

10. Changing jobs can alter your credit scenario and can increase the likelihood that the loan that you applied for will not happen. If you change jobs during the process, a few things to keep in mind as a good rule of thumb are to be compensated the same going from W2 to W2 for example, go from hourly to salary or salary to salary, keep the title and new role the same as the previous role or a higher role within the new company. By using these tips you can mitigate problematic issues in the loan process that may arise by using. one of these 10 examples.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.