Things to avoid before applying for a mortgage

Things to avoid before applying for a mortgage

As a homebuyer, you don’t want anything to jeopardize your chances of closing on the home you’ve selected. Many people can’t afford to buy a home without applying for a mortgage. Therefore, if you need to get a mortgage, it’s critical to prepare so that you’re a suitable candidate for one. Making any of the following mistakes may lower the amount of financing you are eligible for. This may result in a higher mortgage interest rate or a lender’s rejection of your mortgage application. With this in mind, here are some things to avoid before applying for a mortgage.

Things to avoid before applying for a mortgage

Racking up debt

It’s not a good idea to take on more debt before applying for a mortgage. When lenders analyse your mortgage application, one element they consider is your debt-to-income ratio. This is how much debt you’re paying down each month in contrast to how much money you make. If it’s higher than a particular percentage (usually 43%), you’ll be considered a high-risk borrower.

Not checking your credit

Your credit score reveals a great deal about who you are. It tells a lender if you’re financially responsible and how likely it is that you’ll be able to repay your debts in the future. It’s a good idea to check your credit score before filling out a house loan application. This is because it’s often one of the criteria that lenders evaluate when accepting homebuyers for mortgages.

Falling behind on bills

Since credit scores matter to lenders, it’s best to work on improving your score and protecting it before you try to get a mortgage. That means that you don’t want to do anything that could potentially hurt your score, like missing bill payment deadlines.  Paying bills after the due date can knock quite a few points off your credit score. If history shows that you can’t pay your bills on time, your lender will likely assume that you’ll make late mortgage payments too.

Maxing out credit cards

Exceeding your credit card limit or swiping your card too often will hurt your credit score as well. One thing that affects your score is your credit utilization ratio (or your debt-to-credit ratio). That’s the amount of credit you’ve used relative to your credit line. Ideally, that ratio shouldn’t rise above 30%. And if you’re in the market for a new home, it’s important to keep it as low as possible.

Switching jobs

Making a career change weeks before meeting with a lender might hurt your chances of qualifying for a mortgage. A lender is going to want to make sure you have a stable source of income. This is essential to ensure that you can afford to pay a mortgage bill every month. If you start a new job right before you begin your mortgage application, you might not even have proof of income to show your lender.

Making a major purchase

A lender may reject your mortgage application if you make a large purchase, such as new appliances or a new car. When purchasing a home, you’ll need a large sum of money on hand to cover the down payment, closing costs, and insurance. Furthermore, if you have to take out a loan or use a credit card to make the purchase, your credit score may suffer if you don’t pay the bill in full on time or your debt-to-credit ratio grows.

Co-signing on a loan

It’s important to think carefully before agreeing to co-sign a loan, particularly if you’re trying to become a homeowner. By co-signing, you become partially responsible for that debt. If the borrower can’t keep up with payments and defaults, your credit score could dip substantially.

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