Is this your first time filing a home loan? You must be excited to finally get a new house!
Certainly, at this stage, you are now preparing to file your home loan, and you want to be sure that everything will run smoothly. Don’t worry. You’re in the right place!
We know how difficult it is to apply for a home loan. One mistake and everything will follow, and what’s worse is not getting the approval you’re aiming for.
In applying for a mortgage, everything needs to be precise but a lot of people inevitably fall on mistakes (which is normal!).
Here are the common mistakes you need to avoid when filing a home loan.
What is Home Mortgage?
A home mortgage is a type of loan issued by a financial institution, bank, or mortgage company in order to purchase a new residential house.
Home mortgages are mostly long-term that could take up to 30 years.
While the mortgage is not yet paid in full, the lender holds the property’s title and will hand it to the owner once it’s paid off.
The lender has the right to foreclose the property if the borrower fails to pay the mortgage.
Mortgage Mistakes to Avoid
As you prepare your documents for your home mortgage application, there are certain mistakes that you need to avoid to make sure that you get the house you’ve always wanted.
1. You are not checking your updated Credit Score
It is best to check your current credit file. You may request a free copy of your credit file from your credit reporting agency.
If, for instance, your credit score is low, you will have to wait for at least three months and settle any debt you may have.
It could be from your credit card company or a previous mortgage.
2. Choosing the wrong property
There will be instances when you get too excited to see your new house, but suddenly realize that it’s not the right one for you.
This is a common mistake that most borrowers make. So make sure to check the property before you make any decisions. It’s better to delay things for a little while longer than be sorry.
3. Failing to look for better properties
Take your time to look for properties. It’s not wrong to shop around!
Remember, you’ll be committing to a long-term loan, so make sure that you’re 150% sure about the property you want to get.
In addition, it’s best to find the lowest interest rate possible! Look for properties during the period where the market is down because that’s where you’ll get the lowest offers.
4. Spending too much money or getting new credit cards
Getting a new credit card before getting a home loan is a big no-no!
Opening new credit lines will hit your credit score, which will affect your mortgage application.
So hold your purse for now, and wait until the mortgage is approved and closed. Those appliances can wait!
5. Purchasing an expensive house
Only pay for what you can afford.
It’s best if you always pay your mortgage on time rather than losing your house for a price that doesn’t fit the budget.
There are good properties out there that have a low-cost. Just keep looking!
6. Not saving for the Deposit
When you apply for a home loan, most lenders require you to pay a 20% deposit. In case you won’t be able to pay the 20%, you will have to pay for the LMI (Lenders Mortgage Insurance) fee.
What Do Mortgage Lenders Want To Know
Now that you are aware of the common mistakes that you need to avoid, you’re now ready to submit that loan application.
However, you also have to know what these lenders want to know about you.
- They’ll check on your current applications. Lenders would like to know if you have other applications for mortgage or any other forms of loan. The reason is, these applications may affect your credit score and may cause hard inquiries on your report that indicates financial trouble.
- They’ll check for any derogatories or filed bankruptcy. The lender will have to check whether you had any delinquent accounts, bankruptcy, and collected accounts that you missed to include in your report. If you had any, this could be a risk for getting that home loan application approval.
- They’ll check for any dispute statements. Lenders will check if you have any pending dispute statements that may look negative to them. So if you have any pending disputes, make sure to sort them out first before you apply for the home loan.
- They’ll look into your payment records. Your good payment history will make a huge impact on your application. Lenders need to prove that you’re capable of paying the mortgage by having you include your previous statements on your credit report. If you ever had any missed or late payments, the lender may require you to submit an explanation for those instances.
- They’ll check your Credit Utilization Ratio. This factor is what most lenders look into. This ratio determines your credit score at a specific period. If they find out that you are using too much credit, it will be a significant risk. Your credit should be at least under 30% to get a chance for approval.
What Happens If You Lie On a Mortgage Application?
This is the number one rule that you should never do when filing for a home loan.
Most people who have lied on their mortgage application are those who were able to get a mortgage twice or more in a financial year — which you don’t want to do.
But what happens if you lie on a home loan application?
Somehow, some lenders find a way to determine whether you’re lying on your application. If that happens, your application will be instantly rejected.
Also, if, for instance, you went into hardship, there will be an investigation, and if you or the lender didn’t follow the legislation, then it might be taken against you or your lender.
If you lie on your application, the lender has all the right to pull your mortgage and lose your property.
What Can Affect A Mortgage Application?
Different factors could affect or get your application declined by the lender.
If your mortgage gets rejected, don’t lose hope. You’ll still be able to get that approval by working on those factors and making sure that you don’t have previous issues before applying again.
These factors could be any of the following:
- Multiple Credit applications
- Multiple Debt
- Income requirement not met
- Payday loans
- Not registered to vote
- Low Credit Score
- Lender’s qualifications are not met.
- Unstable employment
Points to Consider
Before you file that home loan application, make sure to apply everything discussed in the guide above.
And remember, every requirement is crucial, so make sure to provide only the right and correct documentation.
Because at the end of the day, you are borrowing money to get your dream house.
Don’t lose your chance by lying and getting caught; you’ve got all the time to sort your credit standing to get the home loan you need!