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5 Self Sabotaging Acts You Can Do Before Buying A House
It’s all fine to start dreaming about your ideal home when you finally got that mega raise you have pestered your boss about, or the double promotion you have had an eye on for in the last 6 months. There’s no fault in thinking about fulfilling that mental family picture you have in your head. Your kids are playing their hearts out in the condominium swimming pool. Your family and friend are having a chill session while grilling at the BBQ pit. And you wake up each morning stretching your arms in the air while looking at the perfect sunrise peeking at you behind hills some distance away.
But remind yourself to snap out of that trance and come back to the real world. Because banks do not give out loans based on your imagination. They do that based on a whole spectacular set of credit guidelines that have been refined over the course of decades. If you have no idea why a lender might turn you away even when you are not a top criminal listed with Interpol, you are not alone. Not everybody is aware of what exactly credit is. Some might even have never heard of it. But what you need to know is that just one red mark from the criteria that lenders assess you from can mean no money for you. And the irony is that these demerit points have been accumulated by you voluntarily. A lot of information is pieced together to paint a picture of your ability to service a mortgage. Here are 5 self-sabotaging acts you may not know of.
Go on a shopping spree
You might have heard enough of it. But that does not mean that the importance lose any weight at all. Don’t use credit to buy things cannot afford and get into debt. Sometimes we walk in shopping malls being preyed on by expensive items that appear cheap due to the instalment plans they offer. Connecting the dots to how it can affect our credit don’t always come to mind.
This will also include avoiding big purchases that are usually made with some sort of borrowing. Things like cars, equipment, personal loans, renovation loans, etc, are all going to affect how you appear on a credit report. Also make full payments on your cards before they are due for good measure.
If you are oblivious to how badly these things can affect your borrowing standing, it’ not your fault. Most people who are not in the banking industry do not have a clue. Your credit score, which is a grading a lender judges you as a borrower, is affected by a number of things including the number of inquiries made by lenders and timeliness of payments. The added strain on your cash flow when you take on new debts will also negatively affect your debt service ratio (DSR) when determining the loan quantum you can be approved for .
Guarantor for someone else’s loan
A common dilemma anyone can face in the family is when a family member needs to use your name for some reason to co-sign or be a guarantor for a loan. It could be because of a complex car loan refinancing scheme to exploit, needing to use your good credit as a weight to boost the total average credit, or simply because you have the required income level to qualify for a loan. You become liable for the loan as well when you go ahead with these arrangements.
You might think that a best friend or family member will not let you down. So did everyone who has had their credit screwed by others this way. Even if your nephew really do make timely payments for the debt, the monthly debt obligations will still have to be taken into account when calculating the loan quantum you can afford using DSR.
Late payments on bills
The one thing that a credit officer hates most is recent late payments on your bills. Because these records either paint you as someone who has no respect for repayments or someone who is already in financial difficulty. Yes, there is the old joke that banks will back off when an individual needs money most.
A late payment of more than 30 days is already pushing it. In many cases, just 1 late payment of more than 60 days in the latest month can send your application crashing down from the sky. When your credit report is retrieved from the system for analysis, depending from lender to lender, records from the most recent 6 to 12 months can be taken into account. If you have the foresight that you will be buying property in the next year, do yourself a favour and start paying your bills on time.
Change in employment
Job-hopping is such the norm these days that it is really starting to look like the only realistic way for quick promotions and big pay raises is to jump ship. It is so ridiculous to hear stories of employees who have not had a promotion for years, but got promoted immediately by quitting their jobs and reapplying for the very vacancies they left behind.
So if you are a frequent job-hopper, you don’t want to be caught in the time gap in between jobs. Having no stable income equals to “no loan available” for almost all lenders. But if you have an employment contract signed and agreed by you and the employer, it is usually enough to convince lenders that this is not an area they have to Worry about.
It is also a really bad time to become self-employed. Lenders assume that your income will be unstable once you go the self-employment route until there are authentic documents that can verify a stable income.
Big deposits and withdrawals made recently
Even under normal circumstances, big deposits are investigated by banks when they are made. Especially on new accounts. The main concern is money laundering activities. It will look really suspicious when your account is floating around $100 for the last 5 years and suddenly receives a $500,000 cash injection to purchase property. If this is a windfall or a gift from you daddy, make sure you have the proper documents to prove it. If it is your own money from another account, that can be easily verified by showing your account statements.
Do take note that banks do not have the right to ask other banks to show them your accounts with them. They will not even know which banks you have accounts with other than those that can be observed from your credit report. So the lender you are approaching to get a mortgage will know nothing about your million dollars stashed away in a fixed deposit with their competitor. Which is why you might have to show them your account statements that sudden deposits are your own cash.