Long before you talk to a mortgage broker you need to start considering your finances and preparing them to apply for a mortgage. You may need to seek debt reduction advice and may need to adjust your finances to increase your ability to meet the anticipated payments, but there are certain things that you should NOT do. Herein we consider some of the financial decisions you should avoid taking in the months leading up to a mortgage application.
Don’t change jobs
Lenders like to see stability and they want proof that you have regular paychecks coming in. If you change jobs soon before you apply for a mortgage then this can be difficult to show and the paychecks from your previous employer won’t be counted. As a general rule, you should have been working with an employer for three months before you apply for a mortgage.
Don’t apply for new credit
Applying for new credit in the six months before you get a mortgage can damage your chances of getting a loan. An enquiry that is rejected will reduce your credit rating in the short term and if you are accepted then the lender will view the credit card as an unused and unsecured line of credit.
Don’t close credit cards
Conversely, you should also avoid closing credit card accounts. While this may seem sensible you can actually change your debt to credit ratio by doing so and this can harm your credit rating. Having held credit cards for a long period of time can also demonstrate an ability to handle credit and this will work in your favour.
Don’t make big spends
Big spends like the purchase of a new car on credit are a mistake if you make them close to applying for a mortgage. While you may well be able to afford the car payments and the mortgage payments, these big spends will increase your debt to earning ratio and make you less attractive to lenders.
Don’t pay off car loans
In contrast, yet again, paying off a car loan can also damage your credit score. Your credit score is made up of all current outstanding debts and auto loans can often help your credit score. If you pay off a car loan your credit score may actually drop and this can harm your credit rating and lending potential.