Mortgage Do’s And Don’ts According To The Experts

Buying a home is a massive decision and takes up all your life savings from the past and the future. It is a massive commitment that could go on up to three decades in a few cases. However, one tiny mistake and you would pay the price of it for a long, long time. So, what can you do to make sure that you do not make any mistakes while opting for a mortgage? Well, here are a few tips or dos and don’ts that should help you in the process of getting a mortgage.

Do: Understand Your Finances

Homebuyers’ common mistake is to go for a loan without fully understanding all the costs that come with it. They are usually in a hurry to own the home completely and go for short tenures, which comes with a low interest rate, but a high EMI. Besides the cost of the property, you would be incurring the closing expenses, the taxes, renovation expenses, if any, furnishing, etc., when you are buying a new home. 

Apart from that, you would also have to continue paying your existing bills, debts, and loans. That means a significant portion of your income would go into payment of dues while your income might not increase along with the increasing expenses. To be sure that you understand the monthly EMI that you need to pay, you can calculate mortgage amount by using the amount you wish to borrow, the interest rate, and the loan tenure. There are numerous tools available online which let you do this for free and help you get a clear picture. 

Don’t: Switch Jobs

Most banks and lenders will ask for your income statements and employment documents before approving your mortgage request. And the common prerequisite is the employment records of around 24 months, which would give them a clear insight into your career growth. They would use this to evaluate the prospective growth of your income in the future, your expenses, and your ability to repay the loan. If you are constantly switching jobs or in between jobs, it might be a red flag for the lender, and they might either reject your loan application or charge you a higher rate of interest. 

So, make sure your job history is clear, and you are not switching jobs while applying for a mortgage. While it might seem logical to take up a new job or a second source of income a few months before applying for a loan, an anomaly in your income would be noted and might not work in your favor. So, be careful on how your employment graph reflects in the past two years before applying for a mortgage. 

Do: Continue Your Credit Cards

The mortgage you are applying for will depend on your creditworthiness. And for this, the lender will evaluate your credit score, examine your payment history, and observe your spending patterns. When you turn in or cancel your existing credit cards suddenly, it leaves a negative impact on your credit score. So, continue your credit cards and use them as you normally do.

Similarly, continue paying your bills and dues on time as you always have done. Ensure that your new mortgage does not take a hit on your existing debts and mortgages. If you are trying to retain some funds in your account by piling up on debts, that would negatively affect your lenders. So, clear out dues as you normally do to avoid rejection of your mortgage application. And do not cancel or unsubscribe from any of your existing credit cards.

Don’t: Make Huge Purchases

You are going to make the biggest purchase of your life, and you need to give it your hundred percent commitment. While the mortgage will help you buy the property, you might have to shell out some money from your pocket for the downpayment and the closing fees besides other expenses and to do this, you need to have some money in your savings

So, do not make any major purchases before you buy a new home. More so, never make any large purchases on credit before you apply for a home loan. This would severely impact your income-debt ratio and thereby bring down your credit score. And the last thing you want to stand between you and your dream home is a rejected loan application. So, stop yourself from making any major purchases right before your mortgage. 

Do: Ask Questions

This might not be the first time you are buying a home or taking a mortgage, so this might seem irrelevant. However, remember that every few years, the market changes, and there are new laws, schemes, and charges that come into play. So, it would help if you asked as many questions as possible while applying for a loan. 

It would help if you compared all the lenders in your region, understand the interest rate and charges, and everything in the fine print. In fact, the more questions you ask, the better it is because your lender would understand that you are a serious buyer. Besides clearing all your doubts, it would also help you evaluate if your lender is a knowledgeable person who is confident in closing the deal and would help you land the right bargain. So, do not hesitate to ask too many questions. 

Don’t: Switch Banks

It is normal for us to want to switch banks because of the service, convenience, fees, and interest rates. However, the longevity of a bank account reflects as a positive element on your credit report. When you switch banks, you lose this, and it would impact your credit score significantly. Besides that, you would have to submit a bank statement of at least three to six months along with your loan application, which would be difficult if you have recently changed banks. 

Your previous bank might not hold your account information and transaction history anymore, and you would have to shell out a lot of money and spend too much time trying to obtain it. This would only delay your loan approval process and might impact your chances of getting a loan. So, do not make any massive decisions before applying for a mortgage. 

Following these simple steps and taking the precautions will ensure that the dream home you have set your eyes on, will soon be yours. 

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