Before buying a home, you need to know how much you can actually spend during the entire process: paying for the house, downpayment, legal fees, valuation and any other costs that may arise during the entire process.
Most people will use the mortgage route when they decide to buy a house. It is no secret that the mortgage process is both daunting and stressful thanks to all the paperwork involved, and the time and money spent. You need to be extra patient throughout the approval journey in owning your dream home.
The good news is that, if you provide the lender with all the information they require and respond to their queries in a timely manner, you will reduce the pressure involved with getting a loan.
When you apply for a mortgage, you could be wondering why it is taking so long to be approved. Your paperwork seems fine to you, you feel like you have provided all the information they require. But you still feel like something is off. In reality, you could have sabotaged yourself by doing certain things that you were not aware would impact the process negatively. Below are some mortgage application mistakes that could cripple the entire process.
1. Job Instability
Losing your job or getting a pay cut is beyond your control. Having a major career change could affect your chances of being considered for a loan during the underwriting process. If you are in a position to postpone a job switch, hold it off until you receive the financing, unless you are getting a huge pay rise.
A mortgage lender will look at your employment history before they can give you a loan. They need to know that you are in a position to pay off your debt from having a steady income. Usually, a general rule for the minimum number of years you should have worked to qualify for a mortgage is 2 years. This is not to mean that if you have other sources of income, like entrepreneurship, you will not qualify. That is a conversation that you and your lender should discuss your options freely.
2. Using all Your Savings
You can’t ignore the costs involved when getting a mortgage. Legal fees, valuation, appraisal, registration, are some of the things you need to pay for. This could easily end up leaving you broke with no extra cash in your bank account. Lenders will want to see that you have stored some money to show that you are in a position to repay off the loan. Otherwise, they will regard you as a high-risk borrower and lower your chances of approval. You will also need to budget for more hidden costs when buying a house.
Depending on which financial institution is giving you the loan, the downpayment price will range between 5% and 20%. The higher the downpayment, the less mortgage you pay off.
3. Taking Smaller Loans
You’d never think that a personal or student loan can affect your chances of getting a mortgage to buy your first house. Well, it does. During the prequalification phase, lenders will look at all the debt you have.
If you have any pending loans, make sure you clear them off in good time before you apply for a mortgage. If possible, avoid taking any loans whether big or small. It will just mean that you have more debt that you haven’t cleared.
4. Low Credit Score
Your credit score will determine your risk level as a borrower. To find out your score, there are different companies in Kenya that can provide you with a detailed report. If you’re in the habit of taking loans from mobile lending companies no matter how small, make a point of paying it off before approaching a mortgage lender.
In some cases, you will find errors on the report. People have been accused of taking loans from certain companies when they never did in the first place. In the event that you do realize this, dispute the matter and resolve it as soon as possible. One late payment to a short term loan can play a huge role in getting approval.
5. Impulse Buying
Once your loan is approved, this is not the time to go all out and start buying things to fill up your house. The lender will still monitor how you spend money even before they write you the cheque. Taking on more debt before the money hits your account will affect your chances of getting the mortgage approved. Lenders will ask for your bank statements to check your spending habits. If they see you’re spending money aimlessly, they could deny you the mortgage.
When you think about it, these mistakes that people make prior to applying for a mortgage don’t look like big problems, however, they could be the reason why you don’t achieve your dream of owning a home.
Did you apply for a mortgage and it was rejected? We’d love to hear from you.