Buying a house is perhaps the biggest purchase that you will ever make in your life. That is why you simply cannot afford to make mistakes when it comes to getting house financing. Take a closer look at the mistakes, which will have the greatest negative impact on your chances of mortgage approval, and learn how to avoid them.
1. Relying greatly on gifts
Lenders will inspect your finances more strictly than ever before. If you have plenty of gift contributions from relative or from other sources and these have not been formally documented, you may be unable to use the money to make a down payment. When you have smaller down payment, your chances of getting approved for a mortgage will be lower.
The best strategy to adopt in case you plan to use gifts is to have the people who make them sign contribution letters. That way, you will have formal documents proving the sources of the money. You will be able to get approved and even to secure a more affordable loan. Make sure that you use as much of your savings as possible as well. Many lenders set a maximum limit on the contributions as a percentage of the down payment which the house buyer makes.
2. Taking your time to shop around
When you shop around for a mortgage, the lenders have to get your credit record to provide an interest estimate. Your credit score will not get affected for 30 days after the check. This means that if you get several quotes within a couple of days or a week, your score will not be greatly affected. However, if you shop around over a period of several months, your credit score may get seriously damaged. In this case, you will face a higher rejection risk. You will most likely be charged higher interest as well. The best way to avoid this mistake is to get organized and to get quotes without wasting time.
3. Switching jobs
Lenders evaluate not only the size of your income, but its security as well. If you switch jobs shortly before applying for a mortgage, your income will appear less secure and stable. This can lower your chances of approval significantly. Generally, people who have been working for the same employer for over two years have the best chances of approval. You should try to meet this lenders’ requirement as closely as possible.
4. Being careless about payments
Any missed or late payment will have a damaging effect on your credit score along with blemishing your credit record. Such mistakes are silly, but quite easy to make at the same time. That is why you have to do your best to avoid them. Plan and schedule all payments which you have to make. Use alerts if you have to. If you are too busy, you can consider setting direct debit payment.
5. Taking out another loan
When you take out another loan, both your credit score and your debt-to-income ratio will be adversely affected. This can literally ruin your chances of getting a mortgage loan. If you need to get cash, you should consider other sources such as your credit cards. Just make sure that you use them wisely and repay any outstanding balances on time.