A mortgage is not a saint that gives you many second chances. It is determined about its nature and works on the ‘first impression is the last impression’ principle. If you convince a mortgage lender for the first time, you can win the approval otherwise the chances are ……☹ ….. Yes, you got it right; rejection may happen.
It is better to avoid some mistakes that are notorious for spoiling the mortgage chances of applicants. They are –
- Not paying heed to APR
If you are in the habit of making blunder mistakes, this should be perhaps the biggest one. APR, i.e. the Annual Percentage Rate, is the most dominating factor that decides the overall cost of a mortgage. While exploring the market for the mortgage deals, if you neglect this factor, you will not be able to calculate the total cost.
APR = Fee+ interest/principal/n x 365 x 100
- Interest = Total interest during the loan tenure
- Principal = Loan amount
- n = Number of days in loan term
It is the formula for APR, read it, learn it. Before you make a final decision on your mortgage, do not forget to calculate it. This vital step helps you know the total cost and also the monthly instalments according to the amount you borrow.
- Insufficient down payment
Deposit amount is the base of your strength as an applicant. Approval chances become bright with the right amount in hand for the down payment. However, a contradiction arises if it is insufficient. The minimum limit, as you know, is 5% of the total property value. At least this much should be present to prove your financial capacity.
In the absence of the required amount of deposit, lenders make immediate conclusions on the repayment capacity of the applicant. They are not wrong actually, because if someone cannot afford to give a minimum amount, how will he be able to manage the mortgage instalments later.
- Not comparing mortgage deals
This mistake happens in two cases –
- When people do not know the importance of making a comparison in deals
- When people get driven by the promises of a particular lender
Both the situations are not suitable for any mortgage applicant and can miss their chance of getting a great deal. It is not wise to pick the loan deal randomly and decide in haste. No matter how urgently you need funds, a comparative study of the available options should always be there. Why not let a broker handle all this chaos? They have a deep insight into the lending companies, and they can always suggest the best option.
There are mortgage broking companies that own a special place in the trust bucket of the mortgage borrowers in the UK. You can compare the varied mortgage lenders by using online platforms, for example, Shine Mortgages, John Charcol, Trussle etc.
- Not improving bad credit situation
Bad credit situation can turn the biggest nightmares of the mortgage applicants into realities. If your credit score is poor and despite this fact, there is no effort to improve it, then it is a big threat. Rejection could be the first thing to come in the response of the application.
Always work for the improvement of credit rating. Pay the bill on time, and squeeze the debt size with debt consolidation to avoid delayed payment due to multiple debts. Also, do not open any new credit account.
- Multiple mortgage applications at the same time
This mistake is the devil and destroys all the possibilities of attaining funds. It is never wise to apply to many mortgage companies at the same time. It causes multiple search footprints on your credit reports. Such things usually happen in haste to get funds.
Always approach to only one lender at a time, and for that, a broker may help. It can find the most promising one for you, and this can increase the chances of approval. There is no use of sending the applications to many as the finance companies can take you as a credit hungry applicant. As a result, the rejection may happen.
So the message is
All of the above mistakes are common and destructive in nature. They can create pit holes in your way to a mortgage. Wrong things happen in the absence of information; it is better to stay informed and do in-depth research. Take professional help to make the correct decision at the end of the day. A mortgage is a huge obligation, and you cannot act careless at any stage because sometimes you do not get a second chance. Play safe and get on the property ladder SAFELY.
Author’s note –Stacey Walsh is a financial expert, and in the article, she describes what mistakes you should avoid while applying for a mortgage.