Mortgage lenders have learnt their lesson since the crash of 2008. They’re no longer in the business of doling out 0% deposit mortgages at ten times earning. No, thanks to the getting the fright of their lives back in 2008, they’re behaving more prudently, like a bank should.
That means that it’s a little more difficult for people wanting to buy apartments or houses. Now they have to actually have to prove that they can meet the mortgage repayments and have enough money left over to meet their other obligations.
Your Other Debts
Generally, creditors want to be able to get a picture of your general financial position before making you a loan. Part of this will involve investigating your other debts and assessing whether this will affect your capacity to repay a loan.
Most lenders operate on a 45 per cent rule. In other words, they want to find out whether your debt payments, plus the new mortgage payments, will come to less than 45 percent of your income. That means that if you earn $4000 a month, creditors will usually require that your loan repayments amount to less than $1800.
For many people, this is a make or break situation, especially when you consider how much personal debt many people have. If you have outstanding debts on credit cards or even an auto loan, try to pay it down before applying for a mortgage. Large, outstanding debts may affect the terms of your mortgage, and prevent you from taking one out altogether.
Improve Your Credit Score
Now that banks are being more cautious about who they lend to, credit score requirements have increased. Most banks require a score of at least 600 to get a basic package. Again, the terms are likely to be unfavourable with such a low rating, so it’s worth trying to improve it. At higher scores you’re more likely to get more loan options and better rates.
What many people forget is that your credit rating doesn’t just affect your relationship with the bank, it also affects the seller. Real estate agents and private landlords are interested in your credit score because it is a sign of whether you’ll ultimately pay up. Real estate agents want to do well for their clients too, so that means choosing the best buyers.
If your credit score is low, it might be worth investing in a personalised credit report. This will detail your credit history and enable you to find out where you’re falling down. It also gives you an opportunity to dispute any issues in your report that inaccurately reflect your credit performance.
Prepare For Costs Of Closing
The costs of selling are high. For example, if you’re selling a house for $500,000, you’re likely to be paying around $10,000 in direct costs. Though you may be able to claw these back later through seller credit, the lender does not know that at the outset. Therefore, there needs to be some money set aside for seller costs before you apply for a loan.