1. Filing Bankruptcy or Being Foreclosed Upon
While this may be a no-brainer, it still reigns supreme. Avoid bankruptcy and foreclosure, plain and simple. Either could keep you out of the mortgage game for several years for obvious reasons.
Also avoid mortgage lates. Even if your credit score is sufficient to meet minimum underwriting guidelines, late mortgage payments that show up on your credit report can disqualify you with many banks and lenders.
2. Not Locking Your Mortgage Rate
If you fail to (or forget to) lock the interest rate on your mortgage, it could go up. A lot.
Yes, you have the choice to lock or float when you apply for a mortgage, but make sure you understand both options and keep an eye on interest rates before and during the home loan process.
3. Listing Your Property Before a Refinance
Listing your property on the MLS and then attempting to refinance your mortgage on that same property within six months (or longer) is usually a big no-no. Lenders don’t love the idea of giving you a loan on something you don’t actually want, or tried to get rid of unsuccessfully just months before.
4. Having Major Derogatory Accounts on Your Credit Report
Applying for a mortgage with charge offs and collections, especially medical collections, on your credit report (many consumers have these, often in error, and they can easily be removed via credit bureau disputes. They crush your FICO score!).
Regularly review your credit report to ensure there are no surprises long (several months) before you begin the mortgage process.
Put simply, a low credit score will lead to a much higher mortgage rate, and even disqualification if it drives your monthly mortgage payment high enough. Also steer clear of credit counseling.
5. Not Knowing What You Can Afford
Not figuring out how much you can afford well before beginning your property search. You should get pre-qualified or pre-approved before you even start looking at homes.
6. Opening New Credit Cards Or Big Spending
Opening new credit cards or making excessive charges on existing credit lines before and during the loan application process.
This can hurt your credit score tremendously and increase your debt load, which could lead to disqualification.
7. Applying for a Mortgage with Limited Employment History
Attempting to get a mortgage with less than two years consecutive employment in the same occupation or field isn’t the best idea.
You must prove to mortgage lenders that you will actually continue to make the money you’re currently making to obtain a home loan.
8. Not Having Seasoned Assets and Rental History
Don’t attempt to get a mortgage without documented 12-month housing history or your own verifiable assets that cover at least two months of your proposed mortgage payment, including taxes and insurance.
9. Applying Without Solid Credit History
You may not get approved for a mortgage if you fail to establish your credit history. You generally need at least three credit tradelines (that show up on your credit report) with a minimum two-year history on each to qualify for a mortgage.
10. Failing to Shop Around
If you don’t take the time to comparison shop, as you would any other product you buy, like a big-screen TV or a car, you’re doing yourself a major disservice. It’s even more of a fail when it comes to getting home loan financing.