A lot of buyers have difficulty getting a loan to finance their home. It is essential to prepare all documentation and plan your finances before you apply for a loan.
These are the most common mistakes when applying to a loan.
1. Applying for too many home loan
While shopping around is a great part of the process it doesn’t mean that you should apply to every lender. Do not ever go loan-fishing — whenever you file an application to a lender, it gets recorded on your credit file. Lenders will be able to see that you have applied to other financial institutions.
They might think you were rejected for all your other applications and be suspicious of what you do. These lenders may turn down your application.
Comparing home loans is possible. There are many options for home loans on the marketplace. Each option has its own advantages and disadvantages. There are only a few home loan options that will work for you. You can compare loans and choose the one that suits you best. While a mortgage broker might help you to find the best loan product, it is up to you to decide what you need.
2. You have not reviewed and checked your credit reports.
Your credit score could impact how your application for a home loan will be processed. It is possible to lose all of the work you have put into applying for a loan.
To determine your credibility as a borrower, lenders will look at your credit history. Your credit history can give a clear picture about how you see your finances. Even if your lender doesn’t view it, they can still access it.
Other than your credit score, what are they looking at in your credit reports? There are many. Lenders will review loan requests from the past five years. Lenders can also review details of your existing debt and the names and addresses credit providers you applied for.
Now your lenders can see which credit products you have had over the past two-years, along with how often and how much. Credit limits will also be part of your credit report.
Two of the most important things that can raise questions about your credit score are missed payments and overdue loans. Lenders can immediately see these marks and consider you high-risk. Your borrowing ability could be significantly reduced. You can even get an instant rejection if your lender has stricter-than-average rules when it comes to credit history.
Review your credit history before you apply for a loan. Negative marks on credit reports may not be your fault. Your credit provider could have made an honest mistake. It’s not your fault if you are turned down for something you did not do.
It is possible to ensure that your credit report is clean by correcting incorrect personal information, repeated loans or inaccurate debt records.
3. Credit card accounts can be retired
Your credit score will not be improved by closing an account if there is a lot of debt on your credit cards. Yes, you can close your credit card. It is not recommended to close a credit card account if you have a mortgage. You could lose your credit score if your credit card is closed and your debt-to-credit ratio increases.
4. Taking on additional debts
It’s not a good idea for your credit cards to be used too often before applying on a loan. If you use your credit cards more often than your limit, your credit score may be negatively affected. Doing so will lower your credit score and raise your overall credit utilisation ratio – the amount of credit you have used compared to the amount of credit available to you. This ratio should be kept as low and manageable as possible before you apply to a mortgage.
In essence, racking up debt before applying for a mortgage will increase your debt-to-income ratio – how much debt you are paying off compared to how much money you are making – which is one of the factors lenders are looking at to measure your ability to make mortgage repayments. If your debts exceed six times your income, you will be considered a risky borrower. There are two things that could happen. Your lender might offer you a lower offer or reject your application.
5. Before you can apply, large amounts of money need to be deposited
The banks require that borrowers have savings. This is an indication of financial health. If you don’t have enough savings to pay for a home loan, your lender won’t give you a call.
But if you think it’s a wise move to deposit in bulk before applying for a home loan in the hopes of showing your lenders that you have significant savings, think again.
Before you apply for a loan, you will need to keep track of every transaction that took place in your savings and credit accounts. Your lender may be suspicious if you don’t provide an explanation for large sums of money that have been deposited to your bank account. Ask your mortgage broker for assistance in explaining the transactions.
6. Not knowing the lending criteria
Lenders and mortgage insurance companies follow several criteria when approving a loan for a home.
Many restrictions are placed on property sizes, postcodes, and high-density buildings. Lenders may limit the amount of money they lend to properties in smaller cities. This could mean that you will have to deposit more.
Do your best to make sure you know what rules you have to work by before heading out on the hunt – otherwise you could find extra conditions on your loan or your application denied altogether.
It is easier to get pre-approval before you even look at properties. Brooke Stoddart of Aussie Home Loans recommends that you make sure your pre-approval has been thoroughly evaluated.
Ms Stoddart stated, “Some lenders issue an automated pre-approval, with no assessment.”
“This page usually contains disclaimers. It is very useless.”
7. Don’t shop around
You could lose your application if you do not take into consideration all possible options. Different lenders offer loans with different amounts. Lender A could lend you $330,000 and Lender B $370,000. Lender C might refuse to approve your loan. Compare home loans.
Once you’ve completed your calculations and have a clear understanding of your financial situation, it’s important to act immediately. You don’t have to limit yourself only to one or two lenders.
It’s important not to take on the largest loan you can either, as you may quickly find out that you are stretched beyond your limits. Make sure you’re aware of what commitment you can comfortably manage, with interest rates at this level and a couple of percentage points higher.
8. It is impossible to make a small enough deposit
You could buy a house within many years with no down payment. Home loans are not available 100% of the time. Lenders expect applicants to have at minimum 5% savings for home loans. Lenders may ask for more.
While this may not be a problem for investors looking to leverage equity in their existing home, it can present problems for first-timers pulling together cash for an investment – especially when you factor in extra purchase costs, which you may or may not be able to work into your loan amount.
Do your homework. Do your homework. Educate yourself about the market before you start looking for a property and get a handle on how much you really need before committing to a purchase – and then add a buffer of at least 5% on top. This applies regardless of whether your deposit is funded with equity or hard-saved funds.
9. It can be difficult to comprehend all of the costs associated with buying a home.
Additional purchase costs can be added to your deposit. These costs include stamp duty (Lenders’ mortgage Insurance), stampduty and legal fees.
It is easy for us to forget about all the fees, and how they could affect our cash flow projections.
It might be a good idea to speak to friends, family, mortgage brokers or real estate agents, as they can help advise you about the costs you need to pay – and those you don’t. It is possible to get an overview of ongoing costs like strata management, property management and maintenance, as well as insurance rates.
10. Paperwork snafus
It’s a simple thing – but an important one. It is vital to have the correct paperwork. You could lose your loan application if you don’t have the right documentation.
You may also lose your purchase if you are unable to provide the required documentation.
The best way to be sure it is done correctly is to have a mortgage broker. It’s best to follow the instructions provided by the lender if you’re applying for a mortgage broker. If you apply jointly, you will need to provide evidence for each applicant.
You must only submit required documentation. Aussie Home Loans often encounters clients who send documents that are not required. ATO Tax Assessment Notifications (also known as ATO Tax Assessment Notices) can be used to replace group certificates and bank statements that show that money was deposited in lieu of pay slips.
11. All expenses are not required to be declared
Intelligent Finance is managed by Justin Doobov, an independent mortgage broker. He said that forgetting an emergency credit card could also lead to rejections.
“I have seen some clients not disclose their five credit cards – or even expenses relating to their kids – when they come to us,” Mr Doobov said.
“Of course, when we get their bank statements we see all the payments to the various credit card companies, child care expenses and school fee payments for the kids.
This is a sign that a lender will likely decline your loan due to non-disclosure. For approval, it is best to be transparent and sincere.
12. Significant employment changes
The life events that impact your mortgage application can make a big difference. Change your career is one of the best things you can do.
Lenders require that borrowers work consistently in order to ensure steady income. If you have recently switched jobs, your chances of getting a loan will be lower. It is usually not a good sign for these lenders if applicants are new to their job — they typically tag these people as unstable, which means they have higher chances of defaulting on the loan.
It is highly recommended that you do not make any career changes before applying to a loan. If you are new to your job, it is best to wait six months to one year to increase your chances of getting approved.
What should you do if a loan application is denied?
If you cannot avoid any of the above errors and your application is rejected, you should immediately correct your mistakes. These are some suggestions if you get denied for your application.
Talk to your lender
A lender will tell you what makes a loan application successful. There are many reasons why a loan application may be rejected. Talking with your lender can help you to identify any lapses, and make a recommendation about how to improve your chances for getting a loan.
Review your credit reports
Your credit report is one of the most important factors lenders consider when considering your application. Your credit report should be checked for errors or defaults.
For most loan applications, default payments will be required in order for the loan application to be processed. You may still be viewed negatively if you have defaulted on a loan application. It is necessary to give a detailed explanation.
Take a look at how you are spending your money
However, it does not necessarily mean that you are denied for a loan. It does not mean that you have to completely change how you manage your finances. Learning how to manage your finances effectively may take some time. It is important to take it slowly. It is important to review all financial obligations and make adjustments.
Simple budgets can make a big difference. These budgets will allow you to find additional money that you can use to pay off debts or save. In order to avoid credit reports showing defaults, it is important that you make all payments on time.
A mortgage broker might be a good idea. They can help with your next home loan application. A mortgage broker can help you save both time and money before you submit your application.