By Ben Johnson
Homestore.com

Ghouls, goblins and other frightening experiences may be fine for Halloween, but when you're trying to get a mortgage for your new dream home, you want to avoid potential problems. Here are a few mortgage nightmares to avoid.

Nightmare One: Pile on Those Debts
Henry was a successful stock trader and a newlywed in his late-20s. He had no problem qualifying for a mortgage loan—his credit was excellent and he got the mortgage. But then Henry did a silly thing. "He went out and bought a very expensive new car and didn't tell us," says Judi Wolfson, with RE/MAX Associates in Bucks County, Pennsylvania. "All of a sudden, the day before settlement, the mortgage broker called and said, 'We can't do the loan.' The recheck on the credit report showed a new $700 payment. He had to get his mother to co-sign for him, which was very embarrassing."

The moral of the story? "You shouldn't take out new debts [during the mortgage process], no matter what," advises Wolfson.

Nightmare Two: Change Your Job
Bob was the family's breadwinner, but after being pre-approved for a mortgage, he decided he could make more money by becoming self-employed. Problem is the mortgage lender refused to close on Bob's mortgage because he had made a "material change" in his lifestyle and financial circumstances. "I usually warn people ahead of time about changing jobs," says Wolfson. "If they have to, they should always contact the mortgage professional and give them the details. If it's a job in the same field, it's usually not a problem. But if they were employed and think they'll make more money by being self-employed, it could be a problem because they need a track record."

Nightmare Three: Pack It Up and Move It Out
Lenders often need financial information during the critical time between mortgage pre-approval and the closing or settlement. Unfortunately, that's the same time when people are starting to move and pack away their valuable paperwork. "We've had plenty of people pack away the items they need. It happens all the time. If you're doing a 30- to 45-day settlement, the approvals for your mortgage are going along that whole time, but people pack up and send their belongings on the truck if they're moving out of state. Then the lender needs copies of bank statements and pay stubs for the last six months, or they want to see proof that a certain loan was paid off."

Best advice: Keep all of your important papers with you in a briefcase or somewhere you can easily find them.

Nightmare Four: That's Not My Debt!
Many people have debts on their credit reports that they don't even know about, but need to be corrected. That's why it's always a good idea to get a copy of your credit report as soon as possible and apply early for a mortgage pre-approval.

"I had one couple I worked with on buying a house for a full year," says Wolfson. "They were in their own business and both had inheritances. Never in my wildest imagination did I ever think there would be a problem with that. We found a house and went for a mortgage, and they couldn't get one. Their credit was so bad because they had not been paying their bills on time. They thought it was just natural to wait until they had the money to pay them. We did finally get a mortgage that was about 5% higher than the regular rate because of that."

She recommends having your credit checked well before you find your home, at the beginning of the home-buying process when you first start house hunting, just to make sure there's nothing you have to work on clearing up.

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