Applying for a mortgage is a more involved and complicated process than it has ever been. Here are five things to avoid when meeting with your mortgage broker to help streamline getting a mortgage.
A steady income is what banks look for when handing out a large loan. Although it is not uncommon for people (especially young professionals) to switch jobs every couple of years, it would be advantageous to not highlight every move to your lender. Mortgage lenders want to see a clear path to repayment. Seeing that you've changed jobs frequently, regardless of the reasoning, could be viewed as a red flag.
Most people don’t go into applying for a mortgage knowing everything there is about interest rates, rate shopping or the benefits of 20-year vs. 30-year mortgages. While your mortgage broker can be the best person to educate you on certain questions, you don't need to divulge how much you don’t know. The mortgage market is just that – a market – and, as such, there is always an opportunity to be taken advantage of. Maintaining a stealthy approach to how you find out information could benefit you in the long run and make mortgage brokers treat you more like a partner than a malleable client.
Again, a potential borrower's steadiness is a crucial aspect lenders evaluate. Often borrowers will be quick to reveal they are expecting a new position within their company or that they have a new child on the way. While in many cases this can be either passive or beneficial information, depending on your particular financial picture it can be a detriment. Sharp increases or decreases in salary can prolong the loan process, and if a candidate is already on the fence for approval, the announcement of a new dependent (and liability) can tip the scale out of your favor.
Often when you walk past a bank’s window, you'll see a sign offering a “one-time” deal to lure you into purchasing one of their products. One of the most heavily-advertised packages banks will offer are mortgage rate deals.
There are generally two types of mortgages – fixed or variable rate. Each mortgage type can offer advantages and disadvantages depending on your situation, so it is important to do your research in advance to ensure your decision isn't swayed by the bank.
Fixed-rate mortgages are pretty straightforward and will lock you into the agreed upon rate for the length of the mortgage. In contrast, with a variable or adjustable rate mortgage, the interest rate will fluctuate over the life of the loan. Adjustable-rate mortgages are usually what you will see advertised when walking past a bank. Banks offer very low rates up front for adjustable rate mortgages, and typically these types of mortgages will sustain the low “introductory” interest rate for a period where the interest rate will remain unchanged. The 5-year adjustable rate mortgage is the most common.
Deciding between a fixed- or variable-interest rate mortgage ultimately boils down to the borrower's preferences and financial situation. If you seek stability, then a fixed-rate mortgage is a good option, particularly if you believe interest rates will likely rise during the duration of your loan. On the other hand, though, let’s assume you are starting out in your career and need a lower interest rate to purchase a home. If you are a young homebuyer, who anticipates salary increases in the future, which you believe will allow you to withstand higher mortgage payments and variable-interest rates, then you may choose the adjustable rate mortgage. Adjustable-rate mortgages can also be advantageous to investors who are unsure if they will keep the home for a long period and may be able to secure a low interest rate for the brief time they own the home. Again, taking on an adjustable-rate mortgage is a gamble so none of this type of information needs to be revealed to a mortgage broker beforehand. It is best to meet with your mortgage lender after you've done your homework and made your decision.
One of the biggest problems mortgage brokers run into with prospective buyers is the truthfulness of their intentions. Clients will claim they are buying a primary residence because they think it will help them get approved, then run into problems when their financial documents show otherwise. Lenders will know if you can afford a second home or not, so providing full transparency in your intentions will actually help you achieve your goals better.
The mortgage approval and screening process is put in place to safeguard not only the financial institution but the borrower as well. Although invasive, the details that are researched safeguard borrowers from making an investment they cannot afford. That being said, holding back certain types of personal information – and looking as knowledgeable as you can – will help to expedite the process.