For most people a mortgage is the biggest debt we will ever carry and a home is the most expensive purchase we will ever make. This is why it is absolutely crucial to avoid mistakes that cause you to pay more than you should or even jeopardize your ability to qualify for a mortgage.
Many people make easily avoidable mistakes when shopping for a mortgage, that prevent them from buying their dream home. To help you steer clear of these errors, here’s a list of mortgage shopping mistake to avoid, so that you can enjoy home ownership, get on the path to long-term financial security and make the ensure that the entire mortgage obtaining process is not a burden.
Not managing your credit score properly.
When it comes to purchasing a new home one of the keys is your credit score and credit repayment history. Lenders typically like to see two forms of credit reporting on your credit report for twenty-four months with a clean paid on-time history. It is very important to repay your credit cards, lines of credit and any other form of credit on time every month or payment period. I always tell people it is best to pay off in full your credit card each month but in today's expensive world, I realize this is not always an option.
So to these people, I say make at the very least the minimum payment to keep that credit reporting on time and if possible put more than the minimum payment.
There are many reasons people neglect to pay their credit obligations on time, usually, it comes from an unexpected event or expense but sometimes they are traveling and forget to pay it before they leave. I also see when people move and change their address some bills will slip through the cracks and this can cause an issue because they are no longer getting that reminder mailed to them. The best way to ensure that you pay these on time is to automate the process through your bank or credit union. This way you will be able to keep an eye on it but also know that once you have set this up you should never miss a payment again.
When it comes to your credit score, the higher the better. If your score is high, it will show your prospective lenders that you are responsible with your credit and have money management skills. With a higher score lenders will allow you to have a higher purchase price potentially.
Ignoring telecom or utility payments.
Collections or disputes usually with a telecom or utility company are very common on peoples credit report. The situation normally goes something like the phone or utility company overcharged you for a service and you decide not to pay for that charge and then switch to a new provider. The telco or utility company will then report the account as delinquent and a collection will be registered against you on your credit report. Once this happens, your score will begin to drop and these drops can be very dramatic and as long as that collection charge is in your report, your score will continue to drop.
The best course of action is to either negotiate a settlement with the company or pay the collection in full. These collections are typically a few hundred dollars in most cases, so just paying them out is the best action. It is very important to retain proof that the collection was paid. This proof should be written like a letter of release or a receipt. Once the collection has been paid and settled, your credit score will climb higher again.
Exceeding the limit of your credit card
Exceeding your limit on any reporting credit can have a big effect and push your score lower. Although credit card companies will never call you to say that you have exceeded your limit, in most cases they will just approve the transaction and your credit score will take a big hit.
I have seen on more than one occasion that being $10 to $100 over your credit limit will knock off twenty to fifty points from a person’s credit score. The best way to ensure that you keep your score moving in an upwards motion and not have any fear of going over your limit is to not utilize more than 60% to 65% of the value of the card or line of credit. For example, if you had a credit card with a limit of $10,000 you should not take this card balance over $6000 to $6500. By doing this, you will ensure that your credit reporting is giving you maximum benefits and helping your score go higher.
Buying a car while shopping for a home.
The purchasing of a new vehicle can also be a detriment to purchasing that home you want. I will often tell people if they can wait to get a new vehicle until after they purchase the home it is better to do so. Vehicles over the years have become very affordable in terms of payments and it is quite easy to get approved for a vehicle loan at just about any car dealership in the country.
The problem is that sometimes the payments for the vehicle financing will be just enough to throw the purchasing ratios out. When this happens it can be more difficult to qualify for the home you had wanted to purchase.
The best action to take if vehicle financing is in your future is to purchase the home first, move in then look to get the family a new ride if needed.
Being a secondary name on a credit card.
This situation usually happens when there is a couple and one of them has a very well established credit history and the other perhaps has little to nothing. The person with the credit history will then sign up their spouse as a secondary on their card. Now the spouse will get a card that has their name on it but this card will not report on the secondary spouse's credit report and therefore will not help this person build credit in their name. I would always suggest that the spouse with no or little credit applies to have their own card to begin to build a history.
Getting a low credit limit card to improve your credit score.
Credit limits are very important and the higher the limit the faster your score will move up. I often see people who in the past may have had some trouble with credit and once they dig themselves out, they then get a low limit card of $500.
Having a card like this as your only credit reporting or as one of your credit reporting will do little to help move your score up. I suggest getting a card with a minimum limit of $1500 to $2500 and then using the 60% to 65% rule as mentioned earlier. The reason is that the $500 card is not considered a good measure of creditworthiness by most lenders because the limit is so small.
To ensure you avoid these common mistakes and a number of others, reach out to Kolbi Turner. As a mortgage specialist in Vancouver, BC in January 2006, I have been involved in real estate transactions, the purchasing and investing in real estate since 2002. I am an expert in residential mortgage transactions whether purchasing or refinancing I have the knowledge to help you navigate in this market.
For further mortgage questions, please reach out to Kolbi directly at: