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Mistakes to Avoid

🔴 Don’t shop for homes until preapproved for a mortgage.‍

If your real estate agent will take you out house hunting without preapproval, they are doing you a disservice. You’re not ready. If the home you’re interested in is attractive, by the time you are ready, it’ll likely no longer be on the market. In any case, you’ll be stretched to make decisions at a pace that isn’t reasonable.

🔴 Don’t automatically choose a mortgage lender/Loan Officer because they’re friends or relatives.

It’s a big transaction. You want the best talent, and anything less can cost you and your co-buyers now and/or later.

One of the best RE Agents we’ve worked with says:

“Underperformance on the part of the loan officer or the real estate agent can cause delays, missed opportunities, a lack of confidence on the client's part and/or on the other side of the transaction. Any or all of these can result in a failed transaction or one that never even gets to the negotiation stage.”

🔴 Don’t expect or rely on your mortgage lender/Loan Officer for anything outside their remit.

We’ve covered this extensively, but mortgage lenders are generally for-profit corporations, and Loan Officers are salespeople paid on commission. They do not have a federally-mandated fiduciary responsibility to you. Trust, but verify. Do your own research and stay on top of things throughout the process.

🔴 Don’t lie to a mortgage lender.

The mortgage application process is thorough, and the checks performed by the mortgage lender will surface all relevant details. Specifically do not:

• Overstate income
• Omit or understate debts
• Claim you are an occupant in the property when you aren’t (to get a lower rate)
• Claim that funds from family (or friends) are a gift, when they’re actually a personal loan.

One Loan Officer we work with warns:

‍“What usually triggers a check is that someone conducts an independent fraud investigation. Or they’ll take the gift letter and contact the parents to ask ‘did you give a gift w/ unconditional no-strings attached?’ If the parents say the kid is going to pay them back, the lender is dinged and can call the note.”‍

Another Loan Officer we work with adds:‍

“Big lending institutions compare notes. You need to do things correctly. There is a cost to doing things right, but the cost of doing things wrong is greater. If you get caught later, the whole loan can be called 30 days after you buy the house. When you get caught, it creates a huge chain of events and everyone suffers. The lender wants to get the toxic asset off of their books. Clients who bend the truth can get stung.”‍

Fraud detection today is stellar. Disclose everything to your Loan Officer, and they’ll be your best advocate. Remember, they want to get a deal done.

🔴 Don’t take actions that change your financial position before or during the mortgage process until you have closed on your home purchase.

• Do not change employment, job, or hours worked
• Do not take on new debt
• Do not apply for new credit of any kind (credit card, car loan, appliance, etc.)
• Do not close financial accounts or reduce your borrowing limits
• Do not pay off collections without first checking with your mortgage lender

🔴 Don’t schedule a vacation while going through any part of the mortgage process until you have closed.

This happens a lot! If you’re on a plane or at the beach in another time zone, this can slow things down or even cause you to miss out on a home you’ve mentally moved into.

Advice From The Field

To recap, here are tips to follow during the mortgage process.

✔️ Remember your goals vis-a-vis a mortgage lender: mortgage of best fit, expert guidance, best execution.

• You want the mortgage product of best fit given the loan amount, your expected holding period, your finances, the market environment, and any special circumstances.
• How much you put down (down payment) should be calibrated in discussion with your Loan Officer.
• Sometimes, a down payment of less than 20% that requires Private Mortgage Insurance (PMI) can offer a lower interest rate. This route may be a better option depending on how long you intend to hold the mortgage. Ask your Loan Officer for guidance.
  

✔️ Consolidate your funds as much as possible starting 90-120 days before approaching a mortgage lender.‍

This will minimize the number of statements you need to provide each month until the close of escrow. Ask your Loan Officer for more information.‍

✔️ The amount you are qualified to borrow is not your “budget,” necessarily.‍

A mortgage lender will inform you how much you are qualified to borrow. Treat the headline purchase number you see as a ceiling. The home price you can afford is a subjective matter and a decision you should make together as co-buyers.

Remember, your budget may differ from the amount you’re pre-approved for. Ideally, it is set at about 70-80% of your maximum loan amount unless you anticipate higher earnings in the near future. You may also want to consider the condition of the home and whether or not you anticipate needing to do material repairs, renovation, improvements, or maintenance.

Documentation from your mortgage lender should be super clear, but know:‍

💰 Down Payment + 🏦 Loan Amount = 🏡 Purchase Price‍

Your Earnest Money—part of your Purchase and Sale negotiation—is paid before the close of escrow. Typically, these monies are made available with or soon after mutual acceptance of a purchase contract on a property. This amount gets deducted from the down payment and closing costs required to close escrow.

You also need to consider closing costs, which are expenses related to the purchase of a home. Sometimes, your mortgage lender will cover part of these costs as part of the loan.‍

💸 Initial costs to you = 💰 Down Payment + 🏷️ Closing Costs

✔️ Know that mortgage lenders often have clunky online systems.‍

Many mortgage lenders of all kinds have antiquated systems. Completing the application can be challenging, and the fact that some banks still require wet signatures can be aggravating. Bring your patience. A good Loan Officer can make a difference to smooth the edges here.‍

✔️ Be proactive and take the lead in dealing with your mortgage lender/Loan Officer.

• Ask your Loan Officer to keep ALL parties (professionals + co-buyers) in the loop. Don’t assume this is a given. A good Loan Officer has automation that sends out relevant information at key trigger points. Many do not.
• Connect your Loan Officer to other professionals you enlist, starting with your RE Agent. Again, do not assume that communication is a given. Trust, but verify. We’ve seen many instances of party A waiting on party B, while party B waits on party A. This can tank a home purchase transaction.
  

✔️ Read your mortgage docs!

Mortgage documentation, all-in, can easily total upwards of 100 pages. Most folks don’t read everything they sign. You should, as should your co-buyer(s). If you don’t understand, ask the pros you’ve hired!

Get a head start by reviewing the Uniform Residential Loan Application (link).‍

✔️ Anticipate competition.‍

Throughout the process, your Loan Officer will represent you. You want your loan officer to be in a position to represent you well if and when you’re competing for a home with other buyers. The fact is, attractive homes at good prices generate demand--so anticipate competition.

You’ll need your Loan Officer and your RE Agent to work together to sell the Listing Agent, who represents the home seller(s), on you as buyers and on your offer. What the Listing Agent wants to understand is, “These co-buyers are golden, they have financing, and if my seller accepts their offer it will go through without a hitch. My seller and I will get paid.”‍

The more orchestrated your side, the better. That means you want your Loan Officer + RE Agent team to be convincing, prepared, and to have clout in the (local) market. In a competitive scenario, these factors will determine your success.