Today, it takes relatively more assets, a higher credit score, and more income to access a mortgage as compared to before. Once you have made the decision of owning a house, you would want things to go right so that your mortgage comes through.
As per the Housing Mortgage Disclosure Data, around 8% of all applications for a mortgage are rejected all over the country. There can be a number of reasons for application rejection, and most of them are mistakes committed by the borrowers. Here are some of the common mistakes made when getting a mortgage to help you avoid them and ensure that your financing goes smoothly:
1. Turning self-employed
This is one of the most common reasons for a loan application to get rejected. When a borrower is salaried, the lender is aware that there is a recurring monthly income and repayments are a surety. The lender can also be sure about the amount that the borrower will make every month. However, all this surety is not there when a borrower is self-employed. An inconsistent income makes the lender feel unsafe about their money. So, if you have a steady job, do not quit it before your mortgage application. This does not mean that self-employed people are not eligible for getting a mortgage loan, but they should be prepared for a lengthy process and a lot of documentation to get through as compared to others.
2. Getting a new car financed
Having a garage at home does not necessarily mean that you have to buy a car. Although most home buyers find it tempting, having control over your finances is more important while buying a vehicle. Unfortunately, most homebuyers commit this mistake. The problem here is that the monthly payment for auto loans is anywhere between $300 and $1000, and this debt can reflect badly on your debt-to-income ratio. At the time of the verification for your mortgage loan, it will reflect in your credit report and push back the allowable loan limit of the borrower. This increases the chances of your mortgage loan application getting rejected. This is one of the common mistakes made when getting a mortgage, but it can be avoided.
3. Failing to pay the bills
When you pay your bills on time, it helps you maintain a good credit score. However, failing to pay the bills is a common mistake made when getting a mortgage; it reflects poorly on your credit score, and your mortgage loan application might get rejected. These bills can include anything from credit cards to student loans or recurring payments to a vendor that you want to stop. Even if you have a dispute with the vendor, ensure that you pay the bill on time. Once your mortgage loan is approved, you will have a lot of time to talk with the vendors or the bank and get your disputed bills settled. Until then, it is best to avoid doing anything that can hurt your credit score.
