Applying for a mortgage is a major milestone for many and the last thing you want is your application being denied and the process of securing your dream home being pushed back. Just like you wouldn’t turn up to a marathon without any training, you shouldn’t venture down the road of homeownership without being fully prepared.
Here are the five questions you should ask yourself before applying for a mortgage in order to ensure a smooth ride and get the mortgage you want:
Have you checked your credit report recently?
If you’re thinking of applying for a mortgage make sure to check your credit report at least 6 months in advance of making your application to ensure there are no errors or inaccurate information as this could delay the process.
Your credit score indicates your financial health and shows how consistently you pay off your bills and debts. Monitoring your credit report and score will help you to know exactly where you stand so you can take the correct actions to get it up to scratch for when you make the all-important mortgage application. Be on your best credit behaviour.
Have you adjusted your budget?
A mortgage payment will be an additional monthly expense so it would be wise to start preparing yourself by adapting your budget in advance. Calculate the amount you’ll be paying monthly towards your mortgage and start saving now so you can get used to the budget change. Remember you’ll also have to factor in a number of other costs that will accrue during the process of getting your new home such as estate agent fees, solicitor fees and valuation fees for example.
Make simple changes to your budget now so there are no surprises down the line when your monthly expenses increases as you start paying your loan. Stick to a budget you are comfortable with but also be realistic about what you can afford.
Are your card balances under 15%?
Other than your credit score lenders will also take in to consideration how you use and manage your credit cards (which will also impact your credit score) in order to assess if you’re a reliable borrower. They will want to see how much of your available credit you’re using, this is called credit utilisation.
Among the other reasons not to max out all your cards is that your credit utilisation will be high which will imply you have more debt than you can handle and as a result you could be denied your loan request. A general rule of thumb is to keep card balances under 15% of your available credit. This will show that even though you have some debt you are in complete control and are a minimal risk to them as lenders.
Do you really need another credit card or small loan?
Try to hold off on taking out a new credit card or loan at least 6-12 months beforehand as it can reduce your credit score which will impact your eligibility for a mortgage and the final interest rate you’re offered. Too many credit inquiries in a short space of time will raise a red flag to lenders that you’re desperate for credit but that you’ve also been denied for some reason hence your reason for so many applications.
Have you done your homework?
Since a mortgage is probably one of the biggest financial commitments you will make and to ensure you get the best deal you can get take your time to do lots of research in advance. Thoroughly research the mortgage market including loans, rates, potential lenders and mortgage options before you commit to anything. The more information and knowledge you have the more prepared you are to make an informed decision.
Following these steps should increase your chances of a getting a mortgage loan and make the road to homeownership less stressful. And don’t be discouraged you don’t meet the requirements, let it motivate you to further improve your credit and finances.