I’m a Mortgage Expert and Here Are 10 Bad Habits That Could Stop You From Buying a Home
10 bad spending habits that budding buyers might not know that could actually be keeping you from buying a home, a mortgage expert has revealed.
If you’re applying for a mortgage, chances are you’ll need to provide at least three months of bank statements, possibly six.
But you might not know that some of the things you spend money on are actually “red flags” for lenders.
Whether it’s playing bingo or making payments to friends with jokes or rude referrals, you could be ruining your chances of getting a loan, according to Gerard Boon, partner at mortgage broker Boon Brokers.
With six years of experience in the mortgage business, Mr. Boon reveals 10 bad spending habits you need to avoid now – or risk having your application turned down.
It comes as Britons are still desperate to buy their own home, with growing demand driving up prices.
The latest figures show the average house price was £270,708 in November 2021, 10% higher than the previous year.
The price increases were driven by a large shortage of homes on the market, which means buyers are battling it out in bidding wars across the country.
But even if you’ve beaten rival bidders and a bid is in the bag, make sure you don’t fall at the last hurdle when closing your mortgage deal – here Mr Boon explains why.
Work for a family business
If you work for a family business, keep in mind that lenders might dig deeper into your situation.
“Lenders may be nervous that the family used the relationship solely for the purpose of being able to take out a mortgage,” Boon said.
This might make them nervous about agreeing to lend you money on this basis.
Rude references or jokes in payments
Although forwarding to friends and family may seem harmless, it could hamper your chances of getting a loan approved.
Making a joke about illegal activities or putting a bad word in payments to friends and family is unlikely to impress lenders who scan your statements.
“Using ‘funny’ references that could be misinterpreted may mean a lender needs to investigate further,” Boon said.
This could mean that your application is blocked or even rejected.
The Sun has reported instances where clients have been denied loans due to inappropriate jokes like this.
While it’s tempting to get busy and indulge, your lender may be hesitant to accept a loan if you overdo it.
Mr Boon said most wouldn’t be too worried if you could afford expensive purchases.
But splurging beyond your means — or doing it while you’re in debt — could be cause for concern.
“Lenders will be concerned if they feel the expenses are out of control and beyond what they would expect based on the applicant’s income,” Boon said.
Lots of PayPal transactions
You can pay, send and accept money using PayPal.
But you may not know that using it frequently could prevent you from getting a mortgage down the line.
“While PayPal transactions themselves aren’t a problem, as it’s not always clear who is being paid, having a lot of vague PayPal transactions can raise concerns,” Gerard said.
Use buy now, pay later
If you use a Buy Now, Pay Later service, this will appear on your bank statement.
But be aware that some lenders may want to dig deeper into why you’re using it to pay for goods.
They’ll want to see if you’re using it because you don’t have the money to pay for your purchases all at once – that could be a problem for your app.
“Buy now, pay later can signal to a lender that you are unable to prepay for common items or that you are buying things beyond your means,” Boon said.
He added that the same goes for catalog payments – where you spread payments for goods purchased from a retailer over weekly or monthly installments.
You may not know that playing bingo can be a red flag for mortgage lenders.
“Gambling once in a while for fun with friends won’t be a problem, but a regular habit with larger sums would be classified as gambling, which can raise a red flag,” Boon said.
The same enemies to make regular payments on gambling sites or online casinos, which also appear on your bank statement.
This could be seen as risky spending behavior that lenders will be wary of – and it could mean you lose out on a home purchase.
Multiple store cards
A store card works like a credit card, but you can only use it at the store or retailer where you applied for the card.
Interest rates for these are generally higher than for a credit card, according to Money Helper, and you’ll be charged interest if you don’t repay in full.
“Store cards by themselves aren’t a problem, but if you’re struggling to pay off the balance each month, given their notoriously high interest rate, that could be a warning sign for the lender. “, Mr. Boon said.
Frequent payments to unknown third parties
If an unknown third party is involved in the transactions, this could worry lenders.
This means that someone other than the payer and the beneficiary is involved in a payment.
This could arouse the suspicions of lenders, since they do not know who is involved in these transactions and why they are carried out.
“There are many obvious reasons for making frequent third-party payments – but where possible it is best to clarify the reason to minimize any risk of a red flag,” Mr Boon said.
If cash is the primary payment method, be aware that this could affect your mortgage application.
Some lenders may refuse your application because of this – although many Brits still get paid this way.
For example, if you hire private clients as a housekeeper, dog walker or tutor, you could be paid cash.
But lenders might not see cash on hand as “stable, reliable and legitimate income”, Mr Boon said – and that might mean you get a no to your application.
Recently issued credit cards
If you recently took out a credit card, be prepared for your lender to ask questions.
This could be interpreted as a sign that you don’t have enough money to cover your expenses or that you might be in financial trouble.
This could make you a risk to lend to.
It could also hurt your credit score, which is what all lenders look at when deciding whether or not to lend you money.
Interest rates have risen to 0.5%, adding £700 a year to the mortgages of two million homeowners.
And here’s what rising interest rates mean for your mortgage.
Another mortgage expert explains if you need to pay off your mortgage early.
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