Qualifying for a mortgage is not an easy thing, as lenders follow certain criteria before giving borrowers the financing they need for purchasing a property. As a borrower, you should carefully prepare for your mortgage application. One way of doing that is to avoid mistakes that might reduce the amount of financing you can qualify for, increase the interest rate on your mortgage or even cause a lender to reject your application.

Here are the most common mortgage mistakes that you should avoid if you want to secure a lender’s approval:

Taking on additional debts

Racking up debt before applying for a mortgage will increase your debt-to-income (DTI) ratio – how much debt you are paying off compared to how much money you are making – which is one of the factors lenders are looking at to measure your ability to make mortgage repayments. If you have a DTI higher than six times your income (6 DTI), you will be considered a risky borrower.

Missing bill payments

Your payment history makes up 35% of your overall credit score. In fact, just one late payment can make your score drop by 50 points or above, depending on the circumstances. Like DTI ratio, credit score matters to lenders. The higher your credit score, the lower your risk will be in the eyes of lenders. As such, it is best to work on improving your score before getting a mortgage. That means you should not do anything that may hurt your score, such as missing bill payment deadlines. If your payment history shows you can’t pay bills on time, lenders will likely assume that you will also make late mortgage repayments. So, avoid missing payments.

Overusing credit cards

Like making late bill payments, exceeding your credit card limit or swiping your card too often can also affect your credit score. Doing so will lower your credit score and raise your overall credit utilisation ratio – the amount of credit you have used compared to the amount of credit available to you. To keep this ratio as low as possible, you should limit credit card use before applying for a mortgage.

Shutting down a credit card account

If you have huge credit card debt, closing an account will not necessarily improve your credit score. Yes, there are situations where closing a credit card account is a smart move. However, it will not do you any good if you need a mortgage. If you get rid of a credit card, thereby reducing your level of available credit, your debt-to-credit ratio could rise while your credit score could drop.

If you have no credit at all, find out in this article how you can apply for a mortgage.

Changing jobs

A history of steady employment (for at least two years in most cases) is a key qualification item during the mortgage application process. If you change jobs within the same field and secure the same or higher level of income, you might not encounter any problems. But if you are moving into another career field, or if your income decreases from your previous position, it might cause lenders to reject your application. If possible, postpone your career changes until you have received financing. But if not, discover how you can get a mortgage with a new job.

Making large purchases

If you buy something big, such as a new car or appliance, that can deplete your savings. Remember that one of the things that lenders require from borrowers is to have genuine savings. When you are buying a property, you will need some savings to pay your down payment, closing costs and insurance. Even worse is when you have to take out a loan or swipe a credit card to make a large purchase, because if you cannot pay the full bill on time, that could affect your credit score.

If you want to qualify for a mortgage, it would be best to save as much money as possible and try to reduce your financial obligations beforehand. An additional tip is to consider delaying large purchases until after you have secured your loan.

Depositing a large amount of money

Your relatives can help you pay your down payment, but there are rules relating to down-payment gifts. You cannot deposit the money into your account without properly documenting it. Generally speaking, making a large deposit into a bank account prior to a mortgage application cannot be considered a wise move. Lenders would prefer that a large amount of money you have in your account has been there for at least two months.

Going guarantor for someone’s loan

It is crucial to think carefully before deciding to guarantee a home loan for a family member, especially if you yourself want to become a homeowner. By being a guarantor, you will become partially responsible for that loan. If the borrower defaults on payments, it could make your credit score drop substantially. In a previous article, we detailed everything you need to know about guarantor loans.

Not comparing loan options

There are tonnes of home-loan options out there, but not all of them will be right for your needs. As such, you would need to do some research before pushing through with your application. Look at your circumstances and compare the options that are available to you. You can also enlist the help of a mortgage broker. This professional will make sure you have all the necessary paperwork in order before lodging your application, and will walk you through the application process step-by-step.

If you are set to get a mortgage, it would be in your best interest to avoid taking any actions that will hinder you from qualifying for one. Remember that all applications and denials will be recorded on your credit file, which can then impact your next application negatively. Make sure that everything is in order so that you can put your best foot forward when you finally decide to submit your application to a lender.





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