There are a number of “junk fees” that borrowers should avoid when taking out a home loan. While some of these costs are legitimate (application and title fees, for example), others are completely unnecessary. In addition, some lenders may overcharge for services such as credit reports or document delivery. Here are some of the worst mortgage fees to avoid. These fees are not worth it and could damage your credit score.
Avoid switching jobs to get a home loan
Trying to get a home loan when you’ve just switched jobs is a big mistake. Lenders can raise red flags if they notice frequent career changes. They may assume that you won’t be able to maintain a steady income. This may not be true if you’ve gotten a raise in your current job, but it’s still a good idea to inform your lender before you change jobs.
Changing jobs before applying for a home loan is another mistake. It can delay the closing of your loan and cause problems for your application. Lenders will review your application materials again if you’re changing jobs, so it’s best to wait until you’re less likely to change jobs. However, some lenders will approve your loan before you have your new job. So if you have recently changed jobs, wait until you’re a few months into your new job before applying for a home loan.
Avoid making a large deposit before applying for a home loan
Whenever possible, avoid making a large deposit before applying for t a home loan. Although payroll deposits and transfers between accounts are acceptable while waiting for the loan to be approved, any deposit over $1,000 should be explained to the lender. Large deposits can slow down the approval process or be refused entirely. Instead, hold on to large deposits until the loan has been closed. The bank or lender may ask you for additional documentation to justify your deposit, and this can be discouraging.
Bank deposits from new accounts should be at least 60 days old because these are often a sign of an unreliable source of funds. For example, a borrower earning $100,000 per year might not need to pay $500, but someone earning just enough to cover the down payment may. Large deposits from unidentifiable sources should also be avoided because lenders may ask about them. It is better to pay attention to your financial situation than to the smallest deposit.
Buying something big can increase your debt-to-income ratio
Your debt-to-income ratio is a key measure for lenders. It is based on the amount you pay in monthly debt compared to your income. High ratios are bad for you because it means you will miss more payments and end up defaulting on your loan. Although your debt-to-income ratio does not affect your credit score, having a high balance on your credit cards or loan can hurt your rating.
When applying for a home loan, you should check your debt-to-income ratio. Your debt-to-income ratio shows lenders how much you can afford to spend each month. A good rule of thumb is to keep your debt-to-income ratio below 36%. Buying something big may increase your debt-to-income ratio, so make sure you can afford the loan.
Buying something big can damage your credit score
A new credit account will hurt your credit score when you apply for a home loan, and so will swiping your card too often. Your credit utilization ratio, or DTI, measures how much of your credit you’re using compared to the amount available. If you charge $5,000 on your credit card, your DTI is 62.5%, which is higher than the ideal limit of 30 per cent. Lenders want to see that you have a stable emergency fund to cover the mortgage payments, so having a strong emergency fund is a must.
The first thing to avoid is buying something big before applying for a home loan. These purchases will lower your credit score and could even make your loan application rejected. Your interest rate and loan amount may also be lower, and you may have to put down a higher down payment if you have a low credit score. Luckily, there are several ways to protect your credit score during the home loan application process.
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