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When applying for a mortgage, I definitely want to be the best borrower so that I get the biggest loan I can. The mortgage loan is one of the biggest debts an individual can get, and its repayment period is extended. Thus I want to do all I can to be an ideal borrower. To achieve this, I need to have an unquestionable credit score so that I can meet the lenders’ metrics.
This means that I have to clear all the outstanding debts that include personal loan, credit card, or car loans. These debts have a significant impact on the score, and this affects my qualification for a mortgage and at what rate. However, it is not advisable to clear these debts a few days to make the application because the credit score may fluctuate. To succeed in my mortgage application, I need to understand all the factors that underwriters consider when approving leans.
Here are the factors to consider
Debt to Income Ratio
This is an essential factor that can significantly affect how much a lender will approve. It indicates the debt levels, and it is believed that borrowers with too many loans are likely to default. The ratio is a fraction of debt payments and my gross salary or income. A mortgage can only be approved if the total debts, including this loan, is 43%. While most lenders in the market prefer a ratio that is below 36% Thus if all my debts repayment per month is more than this, my mortgage application will not go through unless I pay off some debts.
Debt and Credit Scores
By not having some debts doesn’t mean that my credit score will be excellent; however, having some loans and paying them back on time is healthy. It is a clear indication that I’m responsible and reliable with debts. However, each of my payments contributes to my credit score positively and negatively. Further paying off all my loans a few days before submitting my mortgage application has a negative impact on my score.
It may drop by a few points and is expected to rise again very soon. Changes in the credit scores a few days to receiving the funds is a red flag. Thus such a change can attract a higher interest rate.
A Potential Home Owner Requires Cash On Hand
Down Payment: When preparing to acquire a property, it is vital to have some cash on hand. I’ll need to make some down payment that ranges from 3.5% to 20% of the entire loan amount.
Closing Cost: the amount is inclusive of application fee, attorney fee, appraisal, escrow fee, credit report, and courier fee homeowners’ insurance and association transfer fees as well as home inspection charges, among others.
Remodelling: the amount needed to remodel the new property.
Relocation Expenses: this is the cost of shifting from the older property to the newly acquired house.
Should I Delay Submitting My Mortgage Application?
A personal loan is one of the consumer debts with a lower interest rate. However, mortgage debt has a slightly lower rate. So instead of paying off this debt before applying for a mortgage, I should consider other loans with a higher rate, such as a credit card. Otherwise, I might clear such debts; then, I end up applying for additional loans to cater for home repairs, relocation expenses as well as other items.
I should also not delay the homeownership process until I clear the personal loan because the rates of mortgage may become more expensive. I will also be stuck with monthly rent for longer. However, before deciding to clear or not clear the personal loan, I should evaluate my options. For instance, paying off the personal debt prior to getting a mortgage may affect my ability to raise the 20% down payment during the homeownership process.
It may cause me to incur additional debts, thus making it unworthy. On the other hand, a personal loan that is affecting my debt-to-income ratio negatively should be paid. Otherwise, I should delay owning a home until I work and pay off the personal loan.
Key Points to Remember Before Submitting My Mortgage Application
Although owning a home is every person’s dream, the process can turn out to be a burden instead of a blessing. Therefore, taking into consideration the following key points will make my homeownership an exciting prospect.
- I should work on improving my score before submitting my mortgage application. This involves eliminating other debts to get approval with favourable terms.
- Having a budget is essential because some property prices are above my price range.
- There are extra housing costs associated with processing a mortgage and acquiring the new property. The delay will help me save money for property taxes, repairs, and agent commissions, among others.
- Delaying that application gives me ample time to increase my down payment amount. Putting more money reduces the risk that I pose to the lender and increases the likelihood of getting an approval very fast.
- Committing to a mortgage when I’m not ready financially can make homeownership a burden than a blessing. It has a higher likelihood of getting me into more debts as I try to meet other costs associated with mortgage applications or maintain the monthly payments.
My Final Take
My mortgage application can still get applied with or without a personal loan as long as my credit score is high. Having a debt that is paid on time demonstrates that I’m reliable and responsible. Thus, waiting to clear my personal loan can improve my score and lower my debt to income ratio.
Further, it will help me to get a higher mortgage amount that will allow me to match the prices of most of the sellers in the match. Taking some time to clear the personal loan will help me to save the cash required for the down payment, closing cost, and relocation expenses. This will help me avoid additional debts besides the mortgage. If you need instant cash, you can visit https://www.fortunecredit.com.sg/.