It can be hurtful when you're told that you don't qualify for a home because your finances are not in order. It can also be a burden paying a higher interest rate on a mortgage due to your risk level and credit score.
When you’re looking to buy a new house, there are several things you may need to refrain from if you want to boost your chances of getting your dream home. Many first-time homebuyers have invariably shot themselves in the foot for engaging in certain activities which affected the way lenders viewed their risk level.
To avoid making such a mistake, here's some important advice to follow!
Taking on new debt when buying a house raises red flags.
Firstly, mortgages are loans that could affect your credit score. Taking on a new loan not only lowers your credit score, but also raises questions about your ability to pay back.
Lenders would like to make sure that you are able to fulfill your home mortgage obligations. To ascertain this, they check your debt-to-income ratio. If you take on more debt when house hunting, this increases your DTI ratio, which is not a good move as this would increase interest rates on a mortgage.
Buying a car before a house can affect the amount of house you can afford.
This is because a car is such a large purchase, which can increase your expenses. It would also affect your debt-to-income ratio, which is what lenders use to evaluate how much mortgage you are eligible for.
The lender will require statements from all of your accounts that include liquid assets while determining your eligibility for a loan.
You'll have withdrawals in some and deposits in others as you shift money between various quantities, especially if they're substantial sums. The documentation for these will be requested by the lender.
It's far easier to leave the money where it is until after you've finished buying a property, unless you want to keep up with all of this paperwork.
This is akin to moving money between accounts.
Changing banks when in the middle of a home buying process creates additional paperwork for you and the lender. This would slow down the mortgage approval process. It is always advisable to stay with your current bank until the mortgage is complete.
When it comes to evaluating your loan application, mortgage lenders seek stability, part of which includes holding the same work for a long time.
Most lenders will accept you for a loan if you have a stable job or at least two years of self-employment. Wait till after you've purchased a home to start your own business.
For part-time workers, changing jobs creates unpredictability in the number of hours that you will work from one week to the next. As such, the lender cannot determine your gross income to qualify you for a loan.
Stay with your current job until you have the loan, then change.
Applying for a credit card during the home buying process does not help your cause if you want to facilitate the purchase of your home through a mortgage lender.
Taking out credit card debt may cause the lender to doubt your financial stability, especially if you have an existing card. The lender may believe that you are not financially secure and need credit to meet your expenses.
No doubt, you'll need furniture and appliances for your new home.
But it is better to wait until after you have been approved for a loan. Making large purchases before the deal is sealed can cause the lender to take a second look and peer deeper into your financial situation.
When you are buying a home, it's best to stay away from anything that will make it look as though you don't have your finances under control. This includes making large purchases that may portray you as being extravagant.
To maintain a good credit score, you should always pay your payments on time.
The higher your credit score, the more likely you are to get approved for a mortgage with a low-interest rate. Paying bills on time not only indicates to the lender that you're financially capable but also gives an insight into your character and money habits.
If you're having difficulty paying your expenses, now might not be the greatest time to buy a house.
When someone asks you to cosign a loan, it's because they don't qualify on their own.
They either don't have enough credit history or have a habit of not paying their debts. By cosigning, you accept responsibility for their actions in any situation. You are legally accountable if they do not make payments.
When a lender examines your credit report, the loan you cosigned appears as though it were yours. This implies that your DTI ratio would be impacted. It also shows that you are exposed to a higher degree of default risk. This may lead to higher interest rates on your mortgage.
Looking to buy a home? Read this first!
First Time Home Buyer? Top 5 Tips, 4 Costs to Consider & 4 Questions to Ask First
You've likely heard plenty about the things you should do before buying a home, but it's often the things that should not be done that stall loan approval or make it harder to get a place of your own.
Buying a home in today's climate can be stressful enough. Don't add to the strain by complicating your ability to land a loan once you've found the property of your dreams.
The common theme that runs through the above-listed tips is: Don't take on new debt when applying for a loan.
It raises a red flag in the eye of the lender because they need to know that you are financially capable of fulfilling your debt obligation to them. If they see a mountain of debt around your finances, it raises doubt on your ability to pay. This may lead to higher interest rates or low mortgage amount.
Photo by Abbilyn Zavgorodniaia on Unsplash
LATEST
September 25, 2023
September 23, 2023
September 22, 2023
September 21, 2023
