The Top 5 Mortgage Mistakes to Avoid
Buying a home can be an exciting and rewarding experience, but it can also be a daunting and overwhelming process, especially for first-time homebuyers.
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Mortgages are a significant financial commitment, and making mistakes during the process can have serious consequences. In this blog post, we'll explore the top 5 mortgage mistakes to avoid.
1. Failing to Check and Improve Your
Credit Score
Your credit score plays a significant role in determining your eligibility for a mortgage and the interest rate you'll receive. Many first-time homebuyers make the mistake of failing to check their credit score or not taking steps to improve it before applying for a mortgage.
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To avoid this mistake, check your credit score and take steps to improve it if necessary. This may include paying off outstanding debts, making on-time payments, and disputing any errors on your credit report. A higher credit score can lead to a lower interest rate and a more favorable mortgage offer.
2. Ignoring
Closing Costs
Another common mistake is ignoring closing costs. Many first-time homebuyers are unaware of the various fees associated with closing a mortgage, such as attorney fees, title search fees, and appraisal fees. These costs can add up quickly and significantly impact the total cost of the mortgage.
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To avoid this mistake, research the average closing costs in your area and budget accordingly. Be sure to factor in these costs when considering the overall cost of the home.
2. Ignoring Closing Costs
Another common mistake is ignoring closing costs. Many first-time homebuyers are unaware of the various fees associated with closing a mortgage, such as attorney fees, title search fees, and appraisal fees. These costs can add up quickly and significantly impact the total cost of the mortgage.
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To avoid this mistake, research the average closing costs in your area and budget accordingly. Be sure to factor in these costs when considering the overall cost of the home.
3. Not Getting Pre-Approved
Getting pre-approved for a mortgage is an essential step in the home buying process. Pre-approval gives you a clear idea of how much you can afford to spend on a home and helps you avoid the disappointment of falling in love with a home you can't afford.
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To avoid this mistake, get pre-approved for a mortgage before you start shopping for a home. This will help you narrow down your search to homes that are within your budget and prevent you from wasting time on homes that are out of reach.
4. Taking on Too Much Debt
Taking on too much debt before or during the mortgage process can have serious consequences. Lenders look at your debt-to-income ratio when determining your eligibility for a mortgage. If you have too much debt, you may not qualify for a mortgage or may be offered a higher interest rate.
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To avoid this mistake, avoid taking on new debt before or during the mortgage process. This includes opening new credit cards, taking out a car loan, or making large purchases on existing credit cards.
4. Taking on Too
Much Debt
Taking on too much debt before or during the mortgage process can have serious consequences. Lenders look at your debt-to-income ratio when determining your eligibility for a mortgage. If you have too much debt, you may not qualify for a mortgage or may be offered a higher interest rate.
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To avoid this mistake, avoid taking on new debt before or during the mortgage process. This includes opening new credit cards, taking out a car loan, or making large purchases on existing credit cards.
5. Choosing the Wrong Mortgage
Choosing the wrong mortgage can be a costly mistake. There are various types of mortgages available, and each has its pros and cons. Choosing the wrong mortgage can lead to higher interest rates, higher monthly payments, and a more significant financial burden in the long run.
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To avoid this mistake, research the different types of mortgages available and choose the one that best fits your financial situation and goals. Don't be afraid to ask your lender questions and seek advice from a financial advisor.
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How Lenders Calculate Income for Commission-Based Borrowers
For many professionalsāsales reps, realtors, consultants, and othersācommission income makes up the bulk of their earnings. While this structure can be rewarding, it also comes with unique challenges when applying for a mortgage. Unlike W-2 employees with predictable salaries, commission-based borrowers must show lenders stability and consistency before qualifying for home financing.
Why Lenders Scrutinize Commission Income
Commission income can fluctuate month-to-month or year-to-year. Because of this, lenders want to ensure that the borrower has a reliable track record of earning commissions and can sustain mortgage payments even during slower months.
The Two-Year Rule
Most lenders require a minimum of two yearsā history of commission income to qualify. This provides a baseline average for income calculations. If youāve been with the same company or industry for a consistent two-year period, that strengthens your case significantly.
Income Calculation Methods
Hereās how lenders typically calculate qualifying income for commission-based borrowers:
1. Two-Year Average ā Lenders add up your commission income from the past two years, then divide by 24 months to get an average monthly income.
2. Declining Income Adjustments ā If your most recent year shows a decline, lenders may use the lower year or request additional documentation to prove sustainability.
3. Verification of Employment (VOE) ā Lenders often verify with employers whether commission income is expected to continue.
4. Tax Return Review ā Lenders examine your IRS tax returns, focusing on net taxable income after write-offs and deductions.
Documentation Youāll Need
To qualify, commission-based borrowers should prepare to provide:
Ā· Two years of tax returns (including Schedule C if self-employed)
Ā· W-2s or 1099s (if applicable)
Ā· Year-to-date pay stubs or commission statements
Ā· Bank statements to verify deposits and cash flow
Pro Tips for Commission-Based Borrowers
Ā· Avoid excessive write-offs. While tax deductions lower taxable income, they can also reduce your qualifying mortgage income.
Ā· Stay consistent. Switching industries or job types can reset the two-year requirement.
Ā· Work with a mortgage broker. Brokers can match you with lenders who are flexible and experienced with commission-based borrowers.
The Bottom Line
Buying a home as a commission-based professional is absolutely possibleābut preparation is key. By keeping thorough records, maintaining steady earnings, and working with the right mortgage advisor, you can put yourself in the best position to qualify for a mortgage and secure the home you want.
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Ā© 2023-2024 Bill Rapp, Medallion Funds LLC, Director of Capital Advisory
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Refinancing youe loan and when to do it
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Copyright Ā©2021 | Mortgage Viking Team
Licensed to Do Business | NMLS # 228246
This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Copyright Ā© 2021 | Medallion Funds
Corporate | NMLS ID NMLS # 1825831
Corporate Address : 2651 N. Green Valley Pkwy STE. 101 Henderson, NV 89014
Corporate NMLS NMLS # 1825831 | Company Website: https://medallionfunds.com/bill-rapp/
Copyright Ā©2021 | Mortgage Viking Team Licensed to Do Business | NMLS # 228246
This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply
Corporate | NMLS ID NMLS # 1825831
Corporate Address : 2651 N. Green Valley Pkwy STE. 101 Henderson, NV 89014 https://medallionfunds.com/bill-rapp/