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The Do's & Dont's of Obtaining a Mortgage

Mortgage Do's and Dont'sWhen it comes to purchasing a home, whether it is your first or your fifth, you can never be too well prepared when it comes to obtaining a mortgage. has provided a few guidelines and steps to follow in the months prior to obtaining your mortgage.  It may not be easy to follow these and at times you will want to not, but the reward of doing so will outweigh any struggles you will encounter.

Five Do's

  1. Make loan and other debt payments on time.  It sounds like a simple thing to do but every month deliquent on a loan or credit card is going to reduce your credit score.  Be sure to know when each bill is due and to get the payment there on time.  It is also not a bad idea to pay  credit card balances in full each month if you have the means to do so.
  2. If money is going to be tight, and something absolutely needs to be missed, miss the credit card payments first, then a payment on any installment loan you may have and lastly, the payment for an existing mortgage.  Credit scoring systems will look at the performance of similar loans first when deciding what type of score to assign.  An existing mortgage will recieve the most weight, for example, then the performance of something like an auto loan, which has similar features to that of a mortgage.  The performance of credit cards will be further down the list which is why that would be the payment to skip, but only if you absolutely have to.
  3. Consider paying off more debt and putting down a smaller amount at your closing.  This will leave borrowers with a larger mortgage, but it will allow them to replace non tax-deductible, high-interest rate debt with lower-rate mortgage debt that features deductible interest.
  4. Obtain a mortgage first if multiple financial obligations are going to pop up in the near future.  New credit card applications create inquiries on your credit report which can hurt your overall credit score.  If these are filed in the months prior to the home loan review, it can have a very negative effect on your chances of receiving a mortgage at a rate you would prefer.
  5. Increase the size of the down payment you are able to make by saving as much as you possibly can.  Don't put your savings into something volatile that could cause you take a significant loss.  Do evaluate money markets or other accounts that offer reasonable rates of return, automatic payroll deductions or other financial incentives to save.

The do's will have little effect if you neglect to follow the dont's as well.

Five Dont's

  1. Don't make any big purchases during the months prior to purchasing a home.  This will tie up any extra money you would have had to put towards your down payment and may require you to get another loan.  Having a significant debt that was just obtained can look bad on a mortgage lender's credit scoring system, plus adding a couple of hunfred of dollars to your monthly expenses may cause your financials to be tighter than you would want.
  2. Don't try to shoot for the 10-bedroom, 6-bath mansion if it's going to be too much of a stretch in your current budget.  You can purchase your dream home within reason and budget.  Someone who goes from a relatively small monthly mortgage payment to a huge one either won't qualify for a mortgage or will end up having to cover too much loan with not enough money.
  3. Don't just get pre-qualified for a mortgage, get pre-approved as well.  Getting pre-qualified for a mortgage consists of a borrower providing credit, income and debt information voluntarily to a mortgage lender or broker.  This means the resulting estimate is just that - an estimate.  When getting pre-approved for a mortgage, borrowers must allow lender to pull credit reports, check debt-to-income ratios and perform other inderwriting steps to provide a more extact rate rather than an estimate.
  4. Don't forget to consider what kind of money personality you have.  By taking out a 30-year fixed rate loan rather than a 15-year loan and investing the money you will save each month, may increase your chances of earining a higher return on your money in the long run.  But if you are tend to spend any extra money you come across, then you can force yourself into saving and accumulating equity faster by going with the shorter term and higher payment loan.
  5. Don't forget that homeownership brings with it many burdens.  The cost of defaulting on a loan is much greater than the penalty of missing a rent payment.  Too many red marks on your financial history can increase future credit card interests.

Keep these in mind when you begin your adventure of buying a home.


Published Wednesday, August 11, 2010 5:57 PM by Joe Prunty

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