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Things to watch out for in your bond application

As a homebuyer, you don’t want anything to jeopardize your chances of closing on the home you’ve selected. Most people need to buy a home with a bond, it’s important to prepare so you’re a good candidate to get a home loan. Making any of the following mistakes could reduce the amount of financing you qualify for, result in a higher interest rate or cause a lender to reject your application.

Check out our bond calculator.

1. Racking up Debt

Taking on additional debt before applying for a mortgage doesn’t make much sense. Your debt-to-income ratio – or how much debt you’re paying off each month in comparison to how much money you’re making – is just one factor that lenders look at when reviewing your mortgage application. 

2. Managing Your Credit Score

A credit score lets a lender know how financially responsible you are and provides them with an idea of whether you will be able to pay your debts in the future. This is often one of the criteria that lenders use when evaluating homebuyers for home loans. Keep an eye on your credit rating!

3. Missing bill payments

Maintaining a good credit rating means avoiding anything that could potentially damage your rating, missing bill payments is one of these.

If history shows that you can’t pay your bills on time, your lender will likely assume that you’ll make late mortgage payments too.

4. Maxing out Credit Cards

Exceeding your credit card limit or swiping your card too often will hurt your credit score as well. One thing that affects your score is your credit utilization ratio (or your debt-to-credit ratio). That’s the amount of credit you’ve used relative to your credit line. 

If you’re in the market for a new home, it’s important to keep it as low as possible.

5. Closing a Credit Card Account

If you’re mired in credit card debt, you might think that closing an account will improve your credit score. But that’s not necessarily true.

If you need a mortgage, closing a credit card account won’t help you at all. By getting rid of a credit card and reducing your level of available credit, your debt-to-credit ratio could skyrocket. And as a result, your credit rating could sink.

6. Switching Jobs

Making a career change weeks before meeting with a lender might hurt your chances of qualifying for a mortgage. A lender is going to want to make sure you have a stable source of income and you can afford to pay a mortgage bill every month. If you start a new gig right before you begin your bond application, you might not even have a pay stub to show your lender how much you’ll be bringing home going forward.

7. Making a Major Purchase

Buying something big – like new appliances or a new car – could lead a lender to reject your mortgage application. You’ll need to have a lot of cash on hand when you’re buying a house so that you can pay for your down payment, closing costs and insurance. What’s more, if you have to take out a loan or swipe a credit card to make that purchase, that’s could affect your credit score if you can’t pay the bill in full on time or your debt-to-credit ratio rises.

8. Marrying Someone With Bad Credit

It’s not uncommon for couples to buy homes after tying the knot. Keep in mind, however that if you’re getting the house together, both of your credit scores and financial histories could be taken into account.

If you’re marrying someone whose credit isn’t in tip top shape, it might be a good idea to work on improving his or her score (and paying off the wedding loan or extra debt you both took on) before trying to get a home loan.

9. Co-Signing on a Loan

It’s important to think carefully before agreeing to co-sign a loan for a child in college or another family member, particularly if you’re trying to become a homeowner. By co-signing, you become partially responsible for that debt. If the borrower can’t keep up with payments and defaults, your credit score could dip substantially.

10. Making Big Deposits

Generally, making a large deposit into your bank account prior to visiting a bond lender won’t look good. Lenders normally want to see that you have plenty of money in your account that’s been there for at least two months.

Conclusion

If you can’t buy a house without getting a bond, it’s in your best interest to avoid any moves that could prevent you from qualifying for one.

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