Why should I wait to get a mortgage?
Choosing to enter the property ladder is one of the most important decisions of your adult life. It can be exciting to want to jump straight in, but in some situations it could benefit you to wait before applying for a mortgage.
You want to save for a higher deposit
Waiting to apply for a mortgage can be frustrating but if you are patient, you can maximise your chances of being approved for a mortgage by being able to put down a bigger deposit. This will also work to open up the available options and may mean that you are able to afford houses in a higher price bracket. If you have a larger down payment, your loan-to-value ratio will also be lower meaning you are more likely to secure the mortgage that you want.
When applying for a mortgage, borrowers are always required to put down a certain amount of money, with the rest of the money having to be covered by the mortgage provider. A higher deposit means less money for the mortgage provider; mortgage providers are more likely to approve higher-deposit mortgages as it means that they are less out of pocket and it is subsequently a lower risk for them.
If you have a higher deposit, you could also benefit from other perks such as more favourable mortgage interest rates and better deals. This could save you a lot of money in the long run.
You have gaps in your employment
Mortgage providers typically look for stable employment in order to approve you for a mortgage. That means if you have recently started a new job, have a gap in your employment history or you have recently changed job status, you may want to hold off before applying for a mortgage. Any hiccups in your employment history will be a red flag to mortgage providers as it can lead to doubt about whether or not you can afford to meet monthly house payments.
If you have only just started at a new job, there is always the risk that the job will not work out and you will be left without income. This is how the mortgage provider will view the situation and it could be the factor that makes or breaks your mortgage application. If you are approved for a mortgage and leave your job shortly after, it is possible for the lender to withdraw your home loan offer. It is recommended that before applying for a mortgage, you should be in a new role for at least two to three months.
It is common for lenders to request to see two consecutive months of pay stubs for mortgage applicants. Thus, if you do not yet have these, you should wait before applying for a mortgage.
Additionally, if your income is average or low, and your debt payments are high, this may be another reason why your mortgage application might be rejected. As a guideline, experts suggest that in order to apply for a mortgage, you should have enough income to comfortably support a minimum of $1,500 per month in mortgage payments (in addition to your other debts).
Your credit score is low
Mortgage providers, like any other loan providers or creditors, will typically look at your credit score to determine whether they should approve your mortgage application and for what amount. The higher your credit score, the better your chances of being approved. Providers recognize a high credit score as a sign that you are able to reliably repay your mortgage.
If you have any negative items on your credit report, financial experts suggest that you must wait a minimum of 2 to 3 years before re-entering the market. However, this could be an opportunity rather than a setback. During this time, you can get on top of your finances including building your credit score and fixing any errors; it is also an opportunity to save for a higher down payment.
Just because you have a lower credit score, does not mean you will automatically be rejected for a mortgage application; however, even if you are approved, it may not be the right time to take on the financial obligation. If you have a low credit score, it is likely that your financial situation is not currently the best it could be. Thus, even if you are approved for a mortgage with a less-than-perfect credit score, it may be in your best interests to wait to reapply in the future when your finances are in a better position.
You have recently been rejected for a mortgage
If you have recently applied, and been rejected, for a mortgage, the best thing you can do is wait before reapplying. Mortgage providers are legally obliged to tell you why your mortgage application was not approved which means that you have something to work with.
In the interim before reapplying for a mortgage, you have a chance to review and fix any problems that you had with your initial application. This might be improving your credit rating, disputing any errors, paying off old debts or taking on more work in order to increase overall income.
Sometimes, it is simply a matter of time. For example, if you originally applied for a mortgage too soon into a new job or too soon after a recent bankruptcy. This can be frustrating but it just requires patience. The longer you are able to wait before reapplying for a mortgage after being rejected, the better it could be for your mortgage prospects.