Mortgage sabotage occurs when a homeowner or home buyer takes action that negatively impacts their mortgage. This can include anything from missing mortgage payments to defaulting on the loan. If you’re looking to buy a home, it’s essential to be aware of these risks and take steps to avoid them. This blog post will outline what mortgage sabotage is and give you three tips for avoiding it. Continue reading to find out.
Mortgage Sabotage Explained –
When you sign up for a mortgage, you’re entering into a long-term agreement with your lender. You agree to make regular payments over a set period, and in exchange, the lender offers the funds you need to purchase your home.
However, sometimes homeowners or homebuyers take action that negatively impacts their ability to repay their mortgage. This is what’s known as mortgage sabotage.
Mortgage sabotage can take many different forms. It can happen when a homeowner misses mortgage payments or defaults altogether. It can also occur when a home buyer knowingly withholds information from their lender that could impact the approval of their loan.
How to Avoid Mortgage Sabotage – Tips
1. Avoid Applying for Credit Cards and New Debts
Before you even think about buying a home, it’s essential to clean up your credit score. This means avoiding any new debts, including credit cards and loans. Additionally, you should make sure all of your debts are paid on time and in full each month.
Whatever sum you apply for will show up on your credit report, and before you know it, your mortgage lender could be giving you a call asking for an explanation.
2. Don’t Change Jobs Before or During the Mortgage Process
Your job is one of the first things a mortgage lender will look at when considering your loan application. They want to know that you have a stable income and are likely to continue earning that income for the foreseeable future.
If you’re thinking about changing jobs, it’s best to wait until after closing on your home loan. Otherwise, you stand the risk of a loan denial or delay.
3. Avoid Making Large Payments
Large payments, such as a new car, can put a damper on your mortgage application. When lenders pull your credit report, they’ll see the high debt-to-income ratio and may view you as a higher-risk borrower.
It’s best to refrain from making any major purchases until you’ve closed on your home loan because that might reflect negatively on you, and we only want you safe from the eyes of otherwise unscrupulous agents.
4. Keep Your Bank Deposits Small
Your mortgage lender will review your bank statements for large deposits during the application process. Payroll deposits, gift money, and other small, easily-explained deposits are not an issue. However, other large deposits might give your lender cause for concern. Why you ask?
If the deposited amount is a loan that you have taken from a friend, family member, or another lender, the monthly cost of repaying it could increase your debt-to-income (DTI) ratio. This could put you above your lender’s DTI limits and jeopardize your chances of getting approved for a loan.
5. Avoid Closing Credit Cards
Your credit score is vitally important when you’re trying to get a mortgage. Many people think that closing credit cards will help improve their scores, but that’s not always the case.
Your credit utilization ratio determines part of your credit score. It is the total of all your credit card balances divided by the total of all your credit limits.
Most experts recommend that you should maintain a 30% credit utilization ratio. So, if you have a credit card with a high limit and low balance, closing it could increase your ratio and lower your score. A lower credit score could affect your interest rate and could even mean you don’t qualify for a mortgage.
6. Avoid Making Late Payments
Late payments are seen as a red flag by mortgage lenders and can quickly put a damper on your application. Payments that are more than 30 days late are usually reported to credit agencies. These delinquent payments can lower your credit score, which can then have a domino effect on the interest rate you’re offered.
If it was just one late payment, try asking your creditor if they would be willing to remove it. Mortgage lenders usually look at your credit report from the past 12 months when considering you for a loan, so one late payment shouldn’t ruin your chances.
Now that you know what not to do, you can focus on getting approved for your home loan and come one step closer to owning your dream home. Just remember to be patient, be proactive, and avoid anything that could potentially sabotage your loan.
If you have any questions about mortgage sabotage or the home buying process in general, reach out to a qualified real estate professional. The professionals will guide and ensure that everything goes smoothly.
If you need more information on how we can help make the home buying process easier for you, please don’t hesitate to reach out!