Do You Know Your Home Loan Ins and Outs?

YNM Real Estate
20 December 2021

Most people cannot buy a home without a mortgage. If you fall into this category, then it is critical that you avoid any of the pitfalls that may reduce the amount of finance that you may be granted, or alternatively cause you to be given a higher interest rate than you would otherwise have been granted.

Understand your credit score. A credit score is a rating of your creditworthiness, based on your history of overdue debt, defaults and credit applications. Multiple credit applications could be a signal to a potential lender that you have to go to lots of different lenders to get credit, or that you have been declined by lots of different lenders - the applications will show up in the credit file, and it will not specify whether it was just an application or whether it was declined.

It is a really good idea to check your credit score before applying for a mortgage.

Applying to multiple banks for a loan will therefore affect your credit score. Even if no supporting documents are submitted, the application will show up in the credit file.

Avoid taking on any additional debt before applying for a mortgage. Lenders will look at your current debt-to-income ratio and if it is above a specific level then your application may be declined.

Make sure that you are not in arrears with any of your bills, and that all bills are paid on time. Paying even one bill late will reflect on your credit score.

Another thing that lenders will look at is the amount of credit that you are currently using – your debt to credit ratio. This is the percentage of your credit limit that is currently being used.

Changing your job before applying for a mortgage is also said to be a bad idea. Lenders need to have evidence of stable employment and income.

Making major purchases just before applying for finance is a risky move. You will need as much cash on hand as possible to cover deposits, closing costs and insurance. Prior to applying for a mortgage it is advisable to reduce your financial obligations rather than add to them.

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