Coming to the realisation that paying rent is not doing your financial situation any good, but is paying off the mortgage of your landlord, is an enlightening experience. Totalling up your rental payments over a year, two, or three years can be a bitter exercise, as you conclude that all of that money could have gone on putting down a deposit on your own home.
You decide that now is the time to bite the bullet and get onto the housing market. Now you have to get on the hunt for a suitable home and an affordable mortgage.
Mortgage applications, however, are not always that straightforward a procedure. You want to make sure you get the best term for your mortgage and the best interest rate. If you do not get a good mortgage deal, you could put yourself under pressure in the future. To help you get a mortgage that you will be comfortable with today and years to come, here are some of the most damaging financial mistakes that could jeopardise your mortgage application.
You Have No Knowledge About Your Credit History
When you apply for a mortgage, one of the critical indicators your lender will look at is your credit history before they decide whether to lend. Your credit score gives away your spending habits, attitude to risk, and how responsible you are.
Just a few late or missed payments that you thought were innocuous, could come back to haunt you years later when you apply for a mortgage. Just because the bank or credit card company got their money in the end, doesn’t mean that they did not lodge your actions to the credit agencies.
Your mortgage lender will not be interested in why you might have missed payments in the past. They are only concerned with the objective credit score that they receive from the credit agencies.
Before you apply for a mortgage, you should get your credit score from one of the major credit agencies. You are entitled to one free report from each of them, and knowing what is on the report will enable you to put things right in time for your mortgage application.
You Frequently Let Your Bank Account Dip Into The Red
You might be organised financially, and have all your essential, regular payments automated so that you do not miss a deadline. However, your impulse purchases, treats, and irregular payments are likely to be the transactions that put your bank account into the red.
If you do slip into negative territory and regular payments are due, those payments could be refused. If your bank refuses to make a payment due to a lack of funds, they will likely put a flag next to your account. This flagging of your account means that they may refuse your mortgage application in the future, or give you less favourable terms. They are also likely to report your actions to the credit agencies, meaning that other mortgage providers will be less open to your mortgage request.
You Could Suffer From Your Co-Applicant’s Credit Score
You may have a perfect credit score, and impeccable financial management abilities, but still get refused for a mortgage application. If you are applying for a mortgage with a partner, then you need to consider their credit history also. Even something as trivial and innocuous as one oversight on a credit card interest payment, can scupper your whole application, or cause you considerable pain in terms of higher interest.
As you would have done for your individual application, long before you and your co-applicant apply for a mortgage, get hold of both credit scores and get any anomalies sorted out. It may be worth holding off on your application until both your scores are good. Not getting a good deal on your mortgage could cost you thousands of pounds on additional interest payments each year.
You Have Too Many Credit Cards With High Credit Limits
The better you are at paying off your credit cards, the more credit your card providers will allow you. This additional credit could be in the form of other cards or higher spending limits on an existing card.
Having this additional credit might be comforting for you to have available. However, it tends to make lenders nervous, as having a high level of credit available means that you could potentially use it.
If you have been given excess credit, it might be worthwhile to contact your credit card supplier and get them to reduce your limit to a level that you actually use, and cancel cards that you do not use. This more conservative access to credit will settle your potential mortgage supplier’s nerves and increase your chances of getting a better mortgage deal.
Considering these damaging financial mistakes well in advance of your mortgage application will help you maximise your chances of getting a good mortgage deal. Proper financial management, not over-extending yourself, and maintaining a good credit score are all critical. Achieve these things, and you will soon be in your new home, with the best mortgage term and the lowest repayment levels.