Common Mistakes to Avoid When Applying for a Mortgage
Getting approved for a mortgage is one of the many hurdles in life you will have to face as an adult. And, when you finally get approved for a mortgage for your dream house, it can lead to a sense of excitement, achievement and joy, however, it can also lead to setbacks if your mortgage application does not get approved. Some factors are not in your control and some are like maintaining a good credit score etc. To prevent this from happening and ensure the mortgage process is straightforward and hassle-free, below mentioned are some of the common mistakes that might prevent your form your mortgage application approved, including a few tips on how to avoid making them.
Failing to make your bill payments on time
This is one of the biggest mistakes that one can make when applying for a mortgage, particularly if it is six months before applying. Missing out on a few monthly bill payments or having insufficient funds will be recorded on your bank statement as well as your credit report, and will ultimately lower your score making it more than enough reason to decline your mortgage application.
Gathering debt ahead of applying for a mortgage
Six months before applying for a mortgage, it is ideal to not create any new debt. However, sadly many people fall into this trap without understanding the impact it can have on their chances of getting their mortgage approved. To avoid this from happening, clear your credit card bills on time instead of just paying the minimum due amount. In the long run, it will be worth it.
Taking out a fresh loan
Similar to accumulating debt, when you choose to take out a new loan irrespective of the reason, it can affect the outcome of how much you can get approved for from the lender. A lender will take into consideration your disposable net income i.e., the income you have left after all your regular expenses are deducted, including loan repayments. It is ideal for your mortgage repayments to not exceed more than 35% of your disposable net income. So, ensure you do the calculations before applying for a new loan ahead of the mortgage process.
Failing to show the lender your ability to make the scheduled repayments
Whether it is paying your high-interest credit card bills or rent instalments, it is important to show the lender your repayment capabilities. All lenders want to see is if you can make the regular repayments on time. Ideally, the repayments should be at least or equal to 10% of your future mortgage repayments. The more money you keep aside to make these regular payments, the higher your chances of getting your mortgage application approved.
Failing short on your savings
Most first-time buyers are aware of the 10% deposit rule. For second-time buyers, the deposit rule is 20%. But are you aware of the hidden costs when applying for a mortgage? To ensure lenders’ peace of mind, the borrower should have enough funds to cover their deposit, including the solicitor’s fees, surveyors’ report, stamp duty, and other expenses involved.
Taking money out of your savings fund
Until all parties sign the dotted line, it is vital to leave your built-up savings and not dip into them to cover any unnecessary expenses. You can use the money saved after you receive the keys to your dream home.
Getting a new job before applying for a mortgage
It can be hard for many when new and much better employment comes along their way, but you have to bear in mind that to get your mortgage application approved, most traditional lenders will want to have a job where you have worked in that company for several months. If you are a self-employed individual, you will at least need to present two years’ worth of accounts of your business.
Postponing the search for mortgage protection
When applying for a mortgage, banks will expect the applicant to have proof of mortgage protection before they approve your application. Based on your medical history, you will be required to undertake a medical examination or provide access to past health records. To avoid these delays and ensure you get your dream home swiftly, enquire with the lender about mortgage protection at the initial stages when working with them to avoid any confusion in the latter stages of the mortgage process.
Working with a lender without doing your due diligence
With a plethora of lenders vying for your attention, it is imperative to not settle on one of the first lenders you come across. You must do your homework to make a well-informed decision. Compare what each lender is offering such as the interest rates and perks like cashback. Find the best deal that suits your specific needs and budget.
Failing to maintain good records
When applying for a mortgage, you will need to provide the lender with a range of your financial records to your lender, including tax records, bank statements, employment verification and much more. Additionally, if you’ve used gift funds to make your down payment, you will have to provide a letter from the people that gave you the gift. A pro tip is to start organizing your financial records so that you can provide them instantly when the lenders ask.