Most lenders rely on a standard home loan application that asks you to disclose basic information about your financial situation. The questions are reasonably straightforward, but there are some easy-to-make errors you would do well to avoid.
Income must be ongoing and verifiable
Some of the most common mistakes are made in the income section of the application.
Some borrowers neglect to list alimony or child support payments they expect to receive as income, even though that additional money might help them qualify for a larger loan amount, lower interest rate or other more favorable terms.
Other borrowers inadvertently overstate their income from commissions, overtime, bonuses, self employment or rental properties. To count in your favor, these sources of extra money typically must be documented and earned consistently for at least two years.
Married couples sometimes want to apply for a loan as if only one of the spouses were the applicant if the other spouse has some credit issues. You can apply for a loan without your spouse’s debts, but in that case, your spouse’s income can’t be included on your application. Income and debts go hand-and-hand when applying for a loan.
On the flip side, you can add a co-signer who has good credit to strengthen your loan application. But the lender makes no differentiation between you and the co-signer. That means the co-signor is completely and equally responsible for the debt if you default on the loan.
Debts must be fully disclosed
Other mistakes often happen when completing the debt portion of the loan application.
Some borrowers mistakenly list their actual monthly credit-card payments instead of only the minimum required monthly payments. Making higher payments is a smart financial habit, but only the minimum payments need to be listed on your loan application.
Other borrowers neglect to disclose court-ordered alimony or child support payments, which count as debt and can impair their ability to qualify for a loan.
Don’t disrupt your financial situation
Mistakes can occur in other sections of the application as well.
Some borrowers run into difficulties when they want to tap government-sponsored first-time home buyer programs, which generally have very strict requirements. Ask your lender to explain the rules of the program before you deem yourself to be qualified.
Lenders typically offer more attractive interest rates and terms to borrowers who occupy the home as their principal residence. If you intend to rent the home to tenants after your loan closes rather than live there yourself, you should disclose this information to the lender.
Also, it’s a good idea to avoid making any major changes to your financial situation after you apply for a loan. The lender typically will need to verify the information on your application before your loan receives final approval and any changes (e.g., new credit cards or an auto loan) could derail that process.
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