Deciding to buy one’s own property is a crucial financial decision, as there is a huge investment, not just financially but emotionally as well. To take a mortgage for the same is also a big step ahead as it requires months of preparation ahead of time. If you are thinking of availing of a home soon, here are five mistakes you should avoid:
- New credit is bad news
When you are considering a mortgage, do not apply for any new credit at least six months prior to the timeline you have set for a home loan. Any other loans or even major expenses should be avoided prior to taking a home loan. Excessive loans prior to taking a home loan is going to increase your debt to income ratio, a ratio that is used by banks to ascertain your payback capabilities.
- Shuffling cash between accounts or opening new accounts
Moving around chunks of money between existing accounts or opening up of new accounts to deposit large sums of money may work against you. If you have had windfall gains before you take a home loan, you could consider keeping it as a cash component rather than opening a new account to deposit it. In case it’s a gift or an inheritance, do make sure you explain it to your loan officer with suitable documents as proof.
- Late payments
Did you know that even a single late payment of 30 days may shave off as many as 50-70 points from an otherwise perfect Cibil score? Make sure you have a clean track record of at least 12 months of on time payments on all your existing debt and credit card bills before you apply for a home loan. While some lenders are more considerate, others may just reject your loan application if they see late payments on your credit report.
- Changing your job
This is a no brainer, but lenders do not like to see any major change in employment. If you are a compulsive job hopper, it will work against you when you apply for a home loan. In order for them to disburse a loan to a borrower, it is very important for the lender to see that you a reliable and stable source of income. If you change your jobs too often or have just left a job to start your own business, a prospective lender may see red and thwart your home owning dreams.
- Co-signing a loan
If you intend to take a home loan yourself, do not think of co-signing a loan with anyone prior to it, even if he or she is a very responsible person. By doing so you are giving out a signal to your prospective lender that you are financially liable for another person’s debt. This in turn will impact the calculation of your debt-to-income ratio and maybe the cause of the rejection of your home loan application.
Avoiding these simple mistakes could better your chances of getting your home loan approved. Most of these factors will also reflect in your Cibil credit report. So make sure you keep a hawk eye on your credit report at regular intervals to see that there are no discrepancies in the same.