When it comes to getting on the property ladder, the first question strikes your mind is “how much mortgage can I borrow”. Getting a mortgage is three times tougher than getting a short-term loan with a bad credit history. It seems like climbing Everest. Before you apply, you look over your finances to ensure that you are not in the red.
Your profile should be as attractive as possible. Grab a chair and laptop and start preparing a spreadsheet of your incoming and outgoings to calculate where you should cut down to have your finances stable. A mortgage loan approval chances are up when you have a larger deposit. However, you should consider some other factors too.
1. Peruse Your Credit Report Before Your Lender Does
A mortgage lender will like to know about your financial discipline. They will make a search on your report to know the length of your credit history, your repayment record, number of defaults, number of inquiries, and the like. If you convince your lender that you pay off what you owe, you are likely to have an approval faster.
Before you apply, try to get a copy of your credit report to go through it. Most of the time, buyers are turned down as their credit scores fail to meet the lender’s criteria for erroneous defaults. Make sure your report shows correct personal details and it does not record an erroneous default.
2. Pay Off Unsecured Debts
Some lenders follow strict benchmarks. They approve the application only when you do not have any other debt. Unsecured debts carry high-interest rates and take the additional burden on your pocket. If you have taken out a personal loan, the lender may doubt on your repayment capacity. It is generally advised that you should pay off your all dues including credit card bills before you submit the application. If any lender approves your application despite the fact that you are under debt, you will end up paying high-interest rates.
3. Close Inactive Credit Cards
If you have a credit card that you have not been using for a long time, it is worth closing it. Multiple credit cards often call your creditworthiness into question. The lenders may conclude that you rely on borrowings and you will not pay off the loan. If you are not able to decide whether you should opt for the closing of your credit card, take guidance from your lender or a credit card company. They may suggest you better.
4. Don’t Apply For A Loan Just Before A Mortgage
Your last loan application must be at least three months old when you apply for a mortgage. It may pull your score and the lender might turn down your application. Lenders search your credit report every time you take out the loan to know your repayment capacity. It leaves hard footprints on your report. These hard inquiries take a toll on your score. Your mortgage lender will think that you rely on credit for your regular needs too. Chances are you will fall behind your repayments.
5. Know About The Type Of Mortgage And The Total Cost Beforehand
The mortgage comes in different sizes and shapes. You may apply for a fixed rate, interest only and adjustable rate. Research properly to know which type of mortgage fits your budget. It is important that you know how much the amount will set you back. Analyze what mortgage I can afford through a calculator to know the total cost and monthly installment of your deal. However, it gives you an estimation. The interest rate may vary when you take out a mortgage because it depends on other factors like your employment status and income, your credit score, your existing debts, and your outgoings. You will get a mortgage approved as quickly as possible if your credit score and your financial status are strong. Make sure that you will be able to repay the debt before you apply, as the lender may repossess your house.