Most people make some expensive and preventable blunders when looking for a mortgage. Borrowers who don’t do their homework often find themselves paying a lot more than they are supposed to and in most cases that additional cost can really hurt. A study from the Consumer Financial Protection Bureau concludes that a large number of consumers don’t go shopping for mortgages and they usually get their mortgage information from lenders and real estate agents who typically are partial.
Borrowers often focus on the home’s acquisition costs and then the interest rate. But variables like closing costs, the loan’s final price, whether the loan is fixed or variable and if the borrower will need to get private mortgage insurance, can considerably change what borrowers end up paying.
We know how important it is for you to make big financial decisions, and getting a mortgage is imperative to push your dreams to reality. Our friends from Hatch are here to share a few tips on Avoiding Mortgage Drawbacks:
Recently becoming self-employed
Self-certified loans earlier, offered a means for the self-employed to purchase a home, however abuse of these mortgages –given that they required no proof of income – caused their downfall at the time of the financial crisis. The Financial Conduct Authority will formally ban self-cert mortgages in April when the mortgage market review rules come into place; however, this has left a number of self-employed borrowers unable to access finance.
If you were self-employed for less than 18 months you will have no option but to simply wait a bit longer until your business is more guaranteed before you apply for a mortgage. If you do have a couple of years behind you, you will probably realize that you are unable to borrow as high as you intended. Each lender has a unique approach to how they are going to estimate borrowings – some might take an average of your earnings in the last three years instead of the best year.
Major lifestyle changes such as having a child
Having a child or changing jobs just before an application will probably result in greater scrutiny and if you are at present renting, you could face some challenges if you change your home on a consistent basis.
Big outstanding debts or available credit
Mortgage providers are not going to accept people that have substantial outstanding debts; hence potential borrowers should look to pay off as much as possible. For those who have large unpaid debts, the amount you can actually borrow is going to be ruthlessly restricted. Close up any credit cards you don’t use.
Not being registered on the electoral roll
The electoral roll is used as a tool to confirm a borrower’s identity without delay, and if you are not registered to vote you could potentially face extra ID checks.
A bad credit rating with the major agencies
Credit scoring companies are part of the mortgage process. Borrowers need to make use of services like Experian, Equifax and Call Credit to verify their own records and correct any concerns before applying.
Evidence you’ve been using payday loans
Highly controversial for their excessive interest rates, payday loan can also damage your likelihood of success. Banks believe consistent use of payday loans implies you are stretched or not able to take care of your finances.
Affordability: don’t try to borrow too much
It is Important you can afford any mortgage you are taking – not only now but later on. Interest rates could possibly be at record lows but they will rise eventually and you should make sure you can afford higher payments. Be realistic with regards to what you can afford. It might seem sensible to moderate your ambitions and purchase a smaller home, instead of stretch yourself and then battle to pay the mortgage further down the line.
Recent defaults or county court judgments
The sub-prime mortgage market has dropped off significantly since the financial crisis and any person with recent problems will find it difficult to get a loan.
Footprint left by applying for too many mortgages
Every time a credit check occurs a “footprint” is left on your file. If you are rejected it will leave a record on your file and hurt your credit score. The more credit you make an application for, the more it appears like you can’t find it and are becoming desperate. If you have been turned down, using a broker will likely be a better option than making a different direct application to a lender.
Payments to gambling sites and going overdrawn
Consistent payments to gambling sites are a huge no-no. While payday loans are still fairly new and lenders are only getting to grips with them, there are situations where lenders reject applicants for having consistent items on their bank statements that seems like payments to a gambling site. Regularly going overdrawn will also keep a tight rein on your mortgage ambitions.