There’s no doubt that the lending environment is different than it was a few years ago.
The banks are in the business of lending money and they're friendly than they have been for a long time now that they realise they don't have to make provision for all those bad debts that were forecast only a year ago when Covid caused many people to defer their mortgage payments
However, you must understand the rules of the game and make yourself attractive to the banks as a borrower.
The problem is many potential borrowers are sabotaging their chances of getting a mortgage.
Here are 4 ways you may be making it harder for the banks to say yes to you.
1. Failing to pay bills on time
In times of trickier finance, it’s imperative that your credit rating is as clean as possible.
One of the simplest ways to achieve this is to ensure you pay your bills on time.
In today’s technological world it really is quite easy to set up your regular payments to be paid either from your bank account or your credit card.
Failing to pay your bills on time will result in a black mark against your name which will not help your chances of securing finance.
Since a black mark on your credit file will sabotage your chances of getting a loan, why not check your credit file before the bank does?
There are a number of free online websites where you can do this.
2. Credit card limits
One of the most common mistakes borrowers make is having several credit cards with generous limits.
Now while you may not have spent up to your limits, lenders don’t really care about the balance on your credit cards.
What they care about are the combined credit limits.
Let’s say you have a couple of credit cards, with a combined balance (money owing) of $1,500 but with a credit limit of $20,000.
It doesn’t matter that you have a low balance.
What matters to the bank is that you have access to $20,000, which you may or may not spend.
It suggests to the banks that you may reply on your credit cards to fund your lifestyle meaning you could go on a spending spree which would reduce your ability to service your home loan – and that is never a good thing in the eyes of lenders...
3. Overspending on credit
Which brings me to my next point, which is overspending on credit.
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Perhaps you have been prone to paying for your overseas holiday on credit (remember the days’ when you could do that?) or even buying the latest pair of high-end shoes on plastic.
Lenders will generally not be impressed with using credit to buy things that you don’t need with money that you clearly don’t have.
Limit your credit card spending to essentials, such as bill payments, and then ensure you pay off the balance every month.
At the end of the day, using credit cards to buy discretionary items is rarely a good idea.
Remember the money on your credit card limit is not yours - it's the banks, and you have to pay them for the privilege of using it.
4. Applying for credit too many times
In today’s technological age, there is an online paper trail more than ever before.
Your credit rating or credit score is something that is not only impacted by paying for things on credit, but it is also affected by applying for credit too many times.
We probably all know someone who simply moves from one bank to the next if their application for a credit card or a personal loan is knocked back.
The thing is this frantic search to borrow the bank’s money will end up on your credit rating, which will make lenders wonder whether you have trouble making ends meet.
At the end of the day, submitting the best loan application as possible is more important today than it ever was.
Sure, there are a few more hoops to jump through, but the fundamentals of securing a property loan are mostly the same.
Lenders want borrowers who are less risky – and those people are usually the ones who are diligent with their budgets and spend less than they earn.
These are just a few of the ways people sabotage their chances of getting a loan.
If in doubt, rather than going directly to the bank, speak with a savvy mortgage professional, they'll point you in the right direction. .
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