NEW YORK – With housing prices leveling off in many parts of the country, it's a good time for qualified buyers to shop around for a new home. But Bankrate.com Editor Elizabeth Razzi warns there are five pitfalls to avoid when trying to secure a mortgage:
Disregarding credit reports
Establishing good credit is the key to locking in a favorable mortgage rate, yet many buyers fail to check their credit reports before applying for a home loan. Even the most fiscally responsible buyers shouldn't assume that their credit report is spotless. Why? Because one in four people reported finding serious errors on their credit reports, according to a 2004 study by U.S. PIRG, a federation of state public interest research groups, and errors like these can hurt your credit score.
Some buyers make the mistake of assuming that they can afford to borrow as much money as lenders are willing to give them. Just because you qualify for a loan doesn't mean it's in your best interest to take it. If you're already struggling to pay rent and a lender offers you a loan requiring even higher monthly payments, you should seriously consider the financial repercussions before accepting it.
If you have an unsteady employment history, you're likely to appear less than stable in the eyes of a lender. It's particularly important to avoid job hopping while your mortgage application is pending. If switching jobs in unavoidable, angle for a position that offers the same or better pay.
Cutting down on credit cards
Paying down credit-card balances is an important part of responsible money management, but closing accounts when you're trying to secure a mortgage is a mistake. Contrary to what you might think, reducing the amount of credit available to you during the buying process can make your credit score go down rather than up.
Not taking advantage of a HELOC
If you are already a home owner and have an existing home equity line of credit don't offload it before purchasing your new home. It can come in handy if you need to temporarily cover the down payment while your old home is being sold.
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