Purchasing a home is one of the biggest purchases anyone will make, and having this approved the first time around can be exciting. However, rushing the process to get a home loan application approved can lead to mistakes that have cost Australians their credit score.
Not checking your credit score
When looking to buy a home, the first thing you will be met with is the application criteria that differs from lender to lender. However, the most common mistake that homebuyers tend to overlook is checking their credit score. This is an essential document that has a record of previous debts and loans that you have taken out. It is basically a document that will prove your creditworthiness.
There are still many Australians that are a bit confused when it comes to understanding their credit scores. A study conducted by Credit Smart revealed that 1 in 5 millennials were confident about what a credit score meant. However, 75% were not aware that they could get access to their credit report for free.
Checking your credit report before you apply can give you time to fix errors or arrears that need fixing. This can help you avoid applying for home loans that will get rejected over a short period of time that can affect your overall credit score.
Why does your credit score play a big role?
Whether you are applying for a home loan or any loan a lender wants to know if you will be able to repay the loan. This is why it is important that you keep up with repayments on other loans and credit cards. It plays a crucial role in terms of what interest rate you will be getting and the amount you will be able to borrow.
Having a good credit score can also give you access to a wider range of home loans that come with features that will be more suitable for your finances. Thankfully, a lender will look at other factors that go beyond your credit score to ensure that you get a fair deal.
Getting your finances in order
Not checking your eligibility for a home loan can also end up costing borrowers their credit score as this can lead to application rejections. You can also be affected if you do not have enough money saved up for a deposit, which can place you as a risky borrower. According to Macro Business, 40% of home loan applications were rejected as some lenders capped the loan-to-income ratio (LTI) requirements.
You can end up being slapped with a lenders mortgage insurance fee if you borrow more than 80% of the houses value. It is better to put away a sizeable deposit that can reduce the amount you will need to borrow and also curb fees that can alter your home buying budget altogether. Keep in mind that there will still be other ongoing fees that come with purchasing a house that could affect your credit score if not budgeted for.