In the world of home buying, the mortgage process can often seem filled with complexities and misconceptions. There are many widespread assumptions that are often more myth than fact. Here, we aim to debunk some of the most common ones about the mortgage process and empower future homeowners with knowledge and understanding.
Myth #1: It’s fine to change jobs during the loan process
Changing jobs during the mortgage process is generally not recommended. Lenders favor career stability and changing jobs can be seen as a risk factor, potentially affecting your chances of mortgage approval.
While changing jobs might not necessarily jeopardize your mortgage approval, switching careers might, as lenders may question your ability to maintain income stability in a new field. Therefore, it’s advisable to maintain job stability until your mortgage has successfully closed.
Myth #2: I’ll start buying furniture for my new home as I wait for the loan to close
Buying furniture while waiting for loan approval can potentially disrupt the mortgage process. Here’s why:
- Credit Inquiries: Many furniture stores offer financing options, which often involves a credit check. These credit inquiries can impact your credit score and may raise a red flag to your lender.
- Debt-to-Income Ratio: Purchasing new furniture on credit can raise your debt-to-income ratio, a critical metric lenders use to assess your capacity to pay back. Higher debt might make you less attractive to lenders.
- Changes in Financial Picture: Lenders will perform a final review of your financial situation before closing. Any significant changes, like large purchases or increased debt, could affect your loan approval.
It’s advisable to avoid making large purchases or taking on new debt until your loan has officially closed. This helps ensure that your financial picture remains stable and appealing to lenders.
Myth #3: There’s no problem transferring money between different accounts during the loan process
While it may seem harmless, transferring money between different accounts during the loan process can potentially complicate your mortgage application.
- Documentation Challenges: Every large deposit or withdrawal needs to be documented and explained to your lender. This can make the loan process more complex and time-consuming and potentially cause delays to your loan approval.
- Source of Funds: Lenders require verification on the source of funds for a down payment. If you’re constantly moving money around, it can be difficult for them to track where the money originated, which could raise suspicion.
- Risk Perception: Frequent transfers might lead lenders to perceive you as a higher risk, as it could indicate financial instability or an attempt to hide negative financial information.
Avoid any unnecessary bank transfer during the mortgage process to keep your financial profile clear and simple.
Myth #4: I can stop making my mortgage payments since I’m refinancing.
This statement is incorrect for several reasons:
- Late Payments Hurt Your Credit Score: Should you quit making your mortgage payments, it could be flagged as a late payment to the credit bureaus. This may significantly lower your credit score, which can affect your ability to get certain rates or even qualify for a refinance at all.
- Potential for Loan Denial: If you’re in the process of refinancing and you miss a mortgage payment, the lender may consider you a higher risk and could deny the refinance loan.
- Risk of Foreclosure: Not making your mortgage payments can lead to foreclosure, even if you’re in the process of refinancing. Don’t stop making payments to your current mortgage until your refinance is completed.
- Accrued Interest and Late Fees: Missing payments can lead to additional interest and late fees being added to your loan balance, increasing the total amount you owe.
Continuing to make your mortgage payments promptly and fully until the refinancing process is finalized is crucial.
These are just a few of the many misconceptions about the mortgage process that can lead to costly mistakes if not dispelled. Understanding the reality behind them is important for a smooth and successful mortgage process. It’s always a good idea to consult with mortgage professionals like Team Mandi and ask questions to ensure you’re making informed decisions throughout the home buying journey.