If you are planning to buy a home, the chances are that you’d also apply for a home loan to fund your purchase. Some borrowers are often unprepared for the complicated process, which can lead them to engage in bad and avoidable mortgage behaviours.
Here are seven bad mortgage behaviours to avoid once you secure a pre-approval:
1. 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 occupation history of the past two years and switching jobs before your final approval could lead to unnecessary delays and complications.
2. Changes in your expenses
Your income and expenses 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. 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. Lenders often perceive what seems like a harmless shopping spree as a red flag. 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.
3. 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.
4. 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 show 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.
5. Not being honest about your finances
To apply for a home loan, you must reveal your true financial condition, including your income, assets, expenditure, credit cards, debts, memberships and even the school fees of your kids. Your lender will not be pleased if they discover any new information during the pre-approval period that you had not previously revealed, intentionally or not. Therefore, it is important to be honest to avoid any unpleasant surprises.
6. 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.
7. 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 pre-approved you with a credit score of 650 but later decides not to lend to buyers with a credit score of less than 700, they might render your pre-approval redundant if they apply the changes retrospectively.
The bottom line
To summarise the above, any change in your financial situation during the pre-approval period could derail your mortgage application. If your credit score decreases, you lose your job or decide to purchase a car before your final home loan approval, your mortgage provider might reject your home loan application
The solution is simple! Just continue doing what you were doing before getting pre-approved to prevent any changes in your financial situation and avoid the mortgage behaviours that can negatively impact your application. 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