You’ve found a house you love and it’s time to apply for a mortgage. But to maximise your chances of success, here are 10 things you should not do before you apply.
1. Forget to check your credit score
This one’s really important. Why? Because lenders search your credit score to see if you:
- Pay your bills on time
- Can afford a home loan
If a lender decides not to offer you a loan, the search leaves a mark or ‘footprint’ on your credit score. These footprints can lower your score, so it’s important to check your rating is in good shape before you apply for a mortgage.
The good news? It’s fairly easy to check your score.
2. Ask for payment holidays
- Affect your credit score
- Tell lenders that you’re struggling to pay your bills
If you need a payment holiday in the six months or so before applying for a mortgage, it’s a sign that you’re already a little overextended. Get financial advice before looking for a home loan.
3. Miss repayments
Missed a few credit card or loan repayments? Again, this tells lenders that you’re struggling to manage your finances.
Make sure you’re on top of your repayments before you ask for a mortgage.
4. Take out new credit
This one’s all about your debt-to-income ratio (DTI). Your DTI is basically how much debt you have compared to your monthly income.
The more debt (or lines of credit) you have, the less likely it is that you can pay all of your bills. So, don’t take out any new credit until you’ve agreed a home loan.
5. Make a large purchase
Don’t put any large purchases like white goods on a credit card before you apply for a mortgage. A large purchase:
- Affects how much credit you have available
- Damages your DTI
Wait until you secure your mortgage before furnishing your new home!
6. Put down large deposits
Similarly, don’t put down a large deposit on a large item like a car anytime soon. Why? You’ve guessed it – the deposit reduces how much credit you’ve got available.
You’re trying to show lenders you can afford a home loan, so hold fire on big commitments right now.
7. Close any accounts
It sounds strange, but it’s a bad idea to close credit accounts before you apply for a mortgage. Here’s why.
- Closing an account reduces how much credit you have available.
- This has a knock-on effect on your DTI and your credit score.
Wait until you get your home loan before you close down that credit card you don’t use anymore.
8. Run up credit cards
It’s a bad idea to max out credit cards for any reason before asking for a home loan. Consider this: if you can’t afford to buy it cash, maybe you can’t really afford it right now.
And again, if you feel like you’re living on credit cards, you might need to check your spending habits before applying for more credit.
9. Change jobs
If there’s one thing mortgage lenders want to see, it’s proof of a steady income. They want to know you can afford the monthly repayments.
The upshot? Unless it’s unavoidable, don’t change jobs until you’ve agreed your home loan.
10. Lose track of your budget
Be realistic about how much you can afford to repay each month. Don’t apply for home loans outside your budget. Even if you’re successful, you’ll struggle to make the payments. And if you don’t get the loan, remember that it leaves a mark on your credit file which affects your score.
Another top tip? Always shop around for the best mortgage deal before you sign anything.
A mortgage is a big financial commitment, so it’s important that your finances are in the best shape possible before you apply.
So, what should you do before you apply for a mortgage? Well, keep an eye on your spending for a few months, and check out your credit score to make sure there’s nothing holding you back. If you have any concerns, always get financial advice.
The final takeaway? Make sure you can afford the monthly repayments before you apply for more credit.
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