To take out a mortgage in Florida successfully, you can’t afford to make any mistake. What you do and don’t do before your application would be magnified and could make you appear riskier to lenders. Before you express an interest in having a mortgage in Fort Myers or any neighboring community, avoid the following bad decisions.
Looking for a House First
Many people hunt for properties to know what the market has to offer. A home search is a harmless activity but not when you’re about to visit a lender’s office.
The amount you can borrow depends on your creditworthiness, not on the price of the property you fancy. The countless hours you spend browsing through listings could go down the drain if you couldn’t find a lender willing to loan you enough money.
Knowing the highest amount of funds you can get with your credentials before narrowing your property options is logical and time-saving. You can seek pre-qualification or pre-approval to get an estimate of how much you can borrow from your prospective lender. This way, you wouldn’t have to waste your time and energy considering properties you actually couldn’t afford.
Acquiring More Debts
A mortgage will consume a large chunk of your monthly income, so any lender will be curious to know your current debt-to-income (DTI) ratio. Your DTI ratio reflects how financially flexible you are. The higher it is, the less capable you are to manage debts.
The maximum DTI ratio varies by lender, but the universally acceptable ceiling is 43%, although you may still secure financing if you go over 50%. When calculating your DTI ratio, don’t exclude your would-be mortgage payment. Your back-end DTI ratio, the one that includes all of your debts, should be less than half of what you make every month. A sub-50% DTI ratio means there’s enough money for other expenses.
To avoid increasing your DTI ratio right before your mortgage application, don’t get any other loan. Obtaining a new debt also triggers a hard inquiry that may slightly bring your credit score down, so you can be hit with a double whammy.
Closing Your Oldest Credit Account
If you think cutting your old credit card is a symbolic gesture of financial responsibility, you couldn’t be more wrong. Doing so can reduce the average age of all of your credit accounts, which may make you look like a less experienced borrower. Considering that the age of credit represents 15% of your FICO score, it’s best to leave your oldest credit account.
Ignoring Errors on Your Credit Report
Never assume that your credit report is 100% accurate, especially when applying for a mortgage. It may contain errors that can reduce your FICO score and disqualify you for lower interest rates.
All of the people behind your credit report are fallible, including yourself. You may have applied for credit cards or loans under different names. Some of your creditors probably don’t report your good payment history. Credit bureau staffers can also commit clerical mistakes. Review your file months ahead of your mortgage application and dispute every inaccuracy you will find.
Mortgage application denial usually stems from imprudence and lack of foresight in the part of the borrower. Every rejection can cause you frustration and negatively affect your credit score, so make sure to do what’s necessary to succeed sooner than later.