7 Things You Must Not Do to Get Your Mortgage Application Over the Line
If you are planning to buy a home, the chances are that you’d also apply for a home loan to fund your purchase.
But are you aware of how much money you can borrow?
We suggest that you use an online calculator to check your borrowing capacity before you even start looking for your dream home. By entering your income and expenditure in the calculator, you will get a ballpark figure of how much money lenders might be willing to lend you.
However, this amount is only an estimate, and getting pre-approved for a home loan will tell you just exactly how much you can afford to spend on a home. You can speak to a mortgage broker for a home loan that is tailored to your situation. Getting a pre-approval is quick and easy. Most banks have online forms that barely take a few minutes to fill up. But it is better not to rely on pre-approvals that are generated in five minutes and not followed up by a meeting with the lender.
In general, once you fill the details online, pre-approval for your loan can take up to 24 hours or a week. You would be required to submit some documentation, and it may be necessary to visit the lender to discuss your loan in detail.
Keep the following documents handy when applying for a home loan:
- Salary slips or proof of income
- ID proof
- Tax returns
- Proof of genuine savings for at least six months
- Proof of assets and any other income
Did you know that 25% of loan applications are rejected for reasons as trivial as incomplete paperwork? Be organised or seek help from a mortgage broker to have your paperwork in line.
Note that your pre-approval is free and lasts for up to 3 months. You also get a rate lock for the period that could save you precious dollars. But here’s an important thing every home buyer must know.
Being pre-approved for a mortgage doesn’t guarantee that you will obtain the financing. It is possible that a mortgage is denied even after pre-approval.
Remember, what you do after you secure a pre-approval is as important as what you did to obtain it. The period between finding the home you want and finally purchasing it is a crucial one and requires you to be on your best financial behaviour.
Lenders check your credit history and financial behaviour until the day of settlement and any red flags in this period could derail your mortgage application.
Here are seven costly mistakes to avoid once you secure a pre-approval:
- Changes in your income – Even if you don’t love your job, this is not the time to tell your boss that you quit! Your pre-approval is based on your income and employment history of the past two years and switching jobs before your final approval could lead to unnecessary delays and complications.
- Changes in your expenses – Your income and expenditure form the basis of your mortgage pre-approval. Therefore, making large purchases after pre-approval or opening a new line of credit could raise the suspicions of your lender. You might be surprised, but it is not unusual for home buyers to take a car loan after pre-approval or rush to the sales to purchase furniture and accessories for their new home, leading to a pile of debt on their credit cards.What seems like a harmless shopping spree is often perceived as a red flag by lenders. Why? Because any additional debt will alter your debt-to-income ratio, and a high DTI makes it easier for lenders to decline your mortgage application.
- Unpaid bills – In our busy lives, it is easy to forget a measly telephone payment – but this little mistake could cost you your home loan! Yes, delayed or missed payments hit your credit score significantly, bringing down your chances of securing final approval from the lender.Be careful and read this article for tips to maintain a high credit score.
- Unexplained deposits in your account – Many lenders allow you to use gifted money as part of your deposit – but they do require proper documentation to trace the source of these funds. Besides, the amount must stay in your account for at least three months to demonstrate responsible financial behaviour. So, if you receive any large deposits in your account, do remember to keep proper paperwork handy to explain the activity in your bank account.
- Not being honest about your finances – To apply for a home loan, you must disclose your true financial condition, including your income, assets, expenditure, credit cards, debts, recurring memberships and even the school fees of your kids. In case you are not honest enough, your mortgage provider will not be pleased to discover any new information during the pre-approval period that you had not disclosed previously, whether deliberately or not.
- Buying a property that does not meet the lender’s criteria – Lenders conduct an independent valuation of your property before advancing a loan against it. So, if the property that you intend to buy does not meet the lender’s criteria or the lender finds it to be of lesser value than what you are paying for it, they might not approve your home loan.
- Recent changes in lending criteria – Here’s a situation that is entirely out of your hands but very real –any change in your mortgage provider’s lending criteria during the pre-approval period could impact the future of your home loan application. For example, if your bank has pre-approved you at a credit score of 650, and later decides to not lend to buyers with a credit score of less than 700, your pre-approval might become redundant if the changes are applied retrospectively.
To summarise the above, any change in your financial situation during the pre-approval period could derail your mortgage application. So, if your credit score decreases or you lose your job or decide to purchase a car before your final home loan approval – your mortgage provider is not going to be pleased and might reject your home loan application.
The solution is simple! Just continue doing what you were doing before getting pre-approved to avoid any changes in your financial situation. If you are confused, you could always speak to a mortgage broker for free and receive expert advice on your situation.
By Vidhu Bajaj,
HashChing Content Writer