6 ways you’re sabotaging your mortgage pre-approval

Avoid common mistakes prospective home buyers make when seeking mortgage preapproval from a lender. Home buyers make many errors that hurt their chances of getting a mortgage pre-approval from their Mortgage broker. You do not want to join their ranks and sabotage your home purchase.

To find out what those missteps are, we talked to two leading experts: a mortgage advisor with Mortgage Brokers Melbourne.

Here are the 6 common mistakes — and tips to avoid them:

Closing credit accounts

Once you have paid off a credit card or revolving debt account, you might be tempted to close the account, so you do not run it up again. However, doing so actually hurts your credit, mortgage broker Melbourne cautions. To get a mortgage pre-approval, you will need at least two current lines of past credit with more than two-year payment history; the longer you have had them, the better. Check with the mortgage broker to find out how much your credit score would factor in the closing paid-off credit accounts prior you make any decisions.

Paying down only high-interest credit cards

It is not the right approach most of the time, although it helps more to pay down balances that make up for a higher percentage of your available credit that is a higher credit utilization ratio.

With a credit utilization ratio of more than 50%, chances of getting a mortgage pre-approval are low.  A credit utilization ratio below 30% places your pre-approval mortgage, chances high and high utilization across some credit cards. When paying the accounts down at least below 50% can dramatically help your chances of earning your lender’s stamp of approval.

 Taking out significant loans

It may seem like a no-brainer, but both mortgage broker Melbourne they see many borrowers make this mistake. Don’t be one of them. Avoid taking out the large car or student loans until after your home purchase closes. Otherwise, your debt-to-income ratio will be higher — and your chances of getting a mortgage will be lower — because you are adding new debt to your plate while your income stays the same. More details here: http://www.bankrate.com/finance/mortgages/keep-mortgage-pre-approval-in-good-standing-1.aspx

Paying off old debts you do not need to repay

If you have debts that have been in collections for several years, you may not have to pay them off. It is possible, depending on your state’s statute of limitations, that the debt is no longer collectible and won’t affect your credit score. States impose a limit of 3 to 6 years for collection agencies to collect debts, although the law different in various states.

Changing from salary to commission

Mortgage broker needs a two-year history of charges or self-employment income to factor in the mortgage pre-approval. If your income is 25% based on commission earnings, which means you must have documented proof over two years for loan pre-approval.

Waiting to cash in investments

A three months’ worth of cash reserves is needed to gain mortgage broker confidence by continuing servicing your monthly mortgage payments if you lose your income unexpectedly. Securities such as stocks, mutual funds, and other investments counted as part of your asset reserves for mortgage underwriting purposes.

Typically, though, cash assets need to be on hand for 2 to 3 months, but it depends on the mortgage broker, counted.  In the case of securities, their value fluctuates, and most mortgage brokers will only factor in 65% to 75% of their actual value as the costs money to sell and convert those investments into cash, in when evaluating your creditworthiness.

To beef up your cash reserves and actual value of securities sell before you seek pre-approval with Mortgage Brokers Melbourne.