Zimmerman Real Estate Blog

Most first-time homebuyers are excited for the house hunt, but not so keen on the most important step...obtaining a mortgage. The experience can be perceived as complicated and stressful, especially by first time buyers. Luckily there are local experts to guide you through every step of the way and help you avoid mistakes.

Tim Whelan, home loan specialist with Churchill Mortgage, says there are three phases of the mortgage process where things can potentially go wrong — shopping, contract, and after closing. The good news is that many complications can be avoided if you steer clear of these common mortgage mistakes. 

The shopping phase

According to the Consumer Financial Protection Bureau, 47 percent of buyers never considered more than one lender. With a financial commitment this large, choosing the right lender is essential, and that may include shopping around a bit.

Today’s buyers are all about convenience, so it’s no surprise that advertisements for online lenders are popping up everywhere. But, buyer beware...there are many uncertainties with an online lender, and while they may advertise a slightly lower rate, there may be hidden costs involved. Several local REALTORS®  have seen things get really stressful, and even some deals fall through, because of issues with online financing.

“In addition to a good rate, you want to select a lender that makes consumer education a priority by explaining all the options available to you as well as the costs involved,” said Whelan. “Your lender should help you evaluate and understand the total cost of your loan to help you save as much money as possible, all things considered.”

The only way to know if you are working with a professional lender who is looking out for your best interests is to have a face-to-face consultation or, at the very least, a phone call to analyze your options and get all of your questions answered.

Another common mortgage “mess-up” during the shopping phase?  Confusing “pre-qualification” with “pre-approval.”

“Legally, a lender can give a pre-qualification letter after having a quick conversation with a borrower about their basic financials,” said Whelan. “The next level of vetting would be a pre-approval, which is obtained by a credit review and automated underwriting findings.”

Whelan and his team often encourage clients to take one more step in the vetting process and become what they call Certified Homebuyers, which means their file has been completely underwritten by an actual underwriter.

“These clients can boast an approval that is the next best thing to a cash offer,” he said. “This is quite important in a competitive market like we are currently experiencing, in which homes tend to receive multiple offers.”

The contract phase

You’ve chosen a local, experienced lender and you got that pre-approval letter. Your REALTOR® helped you find the perfect home and after some negotiation, your offer was accepted. Time to break out the champagne and celebrate, right? Well, not so fast. There are still some problems that can pop up if you’re not careful.

“The most common mistake that buyers could be tempted to make during the contract phase is opening up new lines of credit or increasing their debt,” said Whelan. “During this time, it’s crucial that you keep everything stable. It’s not the time to charge new appliances on your credit card, or be lured into a zero percent interest deal on new furniture.” 

A change in employment or income is another common hiccup. Most lenders like to see at least two years of consistent income history when approving a loan, so changing jobs while under contract can be a big issue.

If you’re switching companies, but maintaining the same career and level of pay, you may be okay. However, if you change careers or move from salary to commission, you will most likely have to wait a while before obtaining a loan.

Bottom line, keep the status quo during the contract phase...continue to make all monthly payments on time, don’t take out any new lines of credit, and don’t make any drastic employment changes. Of course, we all know that things happen, so if issues pop up, contact your lender right away to discuss your options.

The “after closing” phase

You made it to the closing table and finally have those keys in hand. While you can breathe a sigh of relief that the purchase process is over, there is still work to do to maintain your mortgage. Whelan says this is a critical phase that is not discussed much, but it’s tied directly to shopping and lender selection.

“Buying a home is a huge financial commitment, so when you’re choosing a lender, make sure it’s someone who will provide value beyond closing,” he said. “We all have good intentions, but we don’t always follow through with our financial plans. It’s important to work with a professional who will help you to manage your financial and mortgage goals over time and offer guidance when concerns arise.”

In addition to your lender, there are also some local organizations that offer homeowner support. The Center for Financial Health in Lansing is a nonprofit that inspires a lifelong commitment to financial wellness by providing tools and resources for people to make empowered decisions about money and housing. They offer free, confidential counseling sessions with experienced housing counselors, as well as informational group classes that focus on the core factors of financial wellness to set homeowners up for success.

If buying a home in in your future, the best way to avoid mortgage landmines and ensure a successful transaction is to lean on the experts for guidance. To set up a consultation with a professional REALTOR® or lender, visit the Greater Lansing Association of REALTOR®’s website at www.lansing-realestate.com to find a listing of experienced area service providers.