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These Money Moves Can Completely Mess Up Your Mortgage Application

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When you are applying for a mortgage, you should refrain from doing things that would cause your bank to doubt your repayment abilities. Of course, you are applying for a mortgage because you don’t have perfect finances, but you should at least have a good understanding of the eligibility requirements. The more you know about possible pitfalls, the better it is. Here are a few money moves which can completely ruin your chances of getting a mortgage.

Are You Paying For Nearly Everything With Cash?

Most people see using cash in making everyday purchases as a way to avoid their debts. But you should not just shake off your credit cards. If you do not have the required cash for buying a new house, you have to apply for a mortgage, and your credit history will be checked to determine your eligibility. The best way to build a good credit score is to wisely use your credit card. If you do not have a credit card, a mortgage loan underwriter won’t be able to assess whether you are actually capable of repaying your mortgage. No credit equals to bad credit in the world of the mortgage loans. Therefore, before applying for a mortgage loan, get into the habit of using your credit card more frequently than you usually do. To put it differently, you need to demonstrate consistency in repaying your loans on time.

Do You Have Too Much Debt?

While it’s imperative for you to build a credit profile, your mortgage approval possibilities would vanish into thin air if you tend to splurge on things you don’t need and if you have too much debt. If you max out your credit cards, it can hurt your credit score, and your credit utilization ratio would increase. Credit Utilization Ratio is the credit card debt percentage with respect to the credit limit. Therefore, if you are accumulating debt, you always run the risk of lagging behind on repayments. To avoid knock-back on your application for a mortgage, you should always pay your outstanding balances on time. Even if you carry forward an outstanding balance, make sure it’s below 30% of your credit limit. Also, if you have already got the approval for a mortgage loan, do not make big purchases before the closing of your property purchase. New debt would increase your debt-to-income ratio, and it can affect the approval.

Did You Co-Sign A Loan Application For A Friend?

Co-signing for a mortgage for a relative or a friend is a good thing, but you need to be completely aware of the possible consequences, too. When you co-sign a loan application document, you instantly become a debt-holder along with the applicant. A co-signed debt will appear on the credit report and will reflect in your debt-to-income ratio as well. Also, if the other signer stops repaying the loan, you are in for a bigger trouble. Bear in mind that your lender will always take all co-signed debts into account, and if your additional debt is too high, they might turn down your application for a mortgage.

Are You Not Saving Too Much Cash?

Besides taking out a home mortgage loan, you also need a lot of cash to purchase a house. Most mortgage loan providers these days require applicants to bring a lot of cash to their table. For example, you might need to make a down payment, ranging between 3.5% to 5% of the sale price of the property. You also need cash for closing the deal (which is again 2% to 5% of the listed sale price). Therefore, you need enough assets to apply (and get the approval) for a mortgage loan.

Last but not the least, you need to demonstrate financial stability to get pre-qualification for a mortgage loan. This is why your lender will require your tax returns from previous years. Even if you are self-employed, you need to show business tax returns as well. Quitting your day job is not a good idea if you are willing to get a mortgage loan. If you are looking for a mortgage loan now, you should check government websites as well as bank websites to know more about the eligibility criteria. And don’t forget to take these questions into consideration beforehand!

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