While the majority of buyers will require a down payment when applying for a home loan, this is not the only financial consideration that needs to be taken into account. There are several other aspects that prospective buyers need to keep in mind when preparing to purchase a property.
Being prepared and having money set aside for the costs associated with a property purchase is essential. However, there are also things that you should avoid doing during the home buying process, as they could impair your chances of obtaining the finance required.
Here is a few financial faux pas to avoid before the property purchasing process:
Letting your credit score drop:
A low credit score will impact you in two ways – it will negatively affect your chances of bond approval, and if approved, it will have a bearing on the interest rate the bank is willing to provide on the loan. Aspects that will hurt your credit score include missed or late payments, so it is essential to keep all credit lines current. Payments must be made on time and every month. Also, avoid applying for any additional accounts or credit cards, as multiple credit enquiries will impair their credit scoring.
Too much debt:
Where possible, attempt to get rid of existing debt or at the very least reduce it to below 30% of the credit limit. Debt weighs heavily on credit scoring, so it is highly advisable to pay off any consumer accounts before applying for a home loan. Having a high debt-to-income ratio affects affordability levels, which will have a bearing on the bond amount you will be approved for – if you are approved at all. Disposable cash is a key element to loan approval success.
Spending big amounts of money on credit before applying for a loan will severely reduce the chances of getting a loan. Avoid making any large credit-driven retail purchases or buying a big-ticket item such as a car, before applying for a loan.
When it comes to big-ticket items, credit is not the only thing to be weary of, as large cash withdrawals will also raise concern with the lender. Substantial cash withdrawals may require an explanation during the loan approval process.
Lenders take the length that an applicant has been at their current job into account when processing a loan application, so avoid interrupting stable employment during the home-buying process. Someone who moves from one job to the next within a reasonably short period can be seen as a credit risk. Banks like borrowers who have a stable employment record with at least six to twelve months or more in the same job with a regular income.
Maxed to the limit:
Just because the bank is prepared to offer a certain loan amount to the buyer, doesn’t mean that you should buy a home for that amount. There is more to homeownership than just a loan repayment, such as rate and taxes, maintenance costs and possibly levies. Try to stick within the price range that allows you to comfortably manage the total monthly home expenses and have something left over. By looking at homes below your maximum limit, you will also be able to compete with other buyers in a multiple-offer situation.
Those who are financially prepared and avoid making any missteps during the home-buying process are well on their way to becoming homeowners.