We have already written about the very concept of creditworthiness, but also about ways in which your creditworthiness will soar up.
Now the time has come for the most common mistakes made when applying for a mortgage. What is worth careful not to spoil the image of a credible borrower?
Who doesn’t risk this …
For a long time, you have become more and more boldly convinced that having your own corner is an important step towards independence?
Mentally and financially are you prepared for this decision – despite this, the bank looks unfavorably at your idea? Find out which mistakes to avoid if you don’t want to ruin your property purchase plan. Here are the factors that negatively affect your credit standing!
An unlucky contract for a specific work
Banks, like other financial entities, are fighting for new customers. Therefore, no one is surprised by the fact that loans are granted to persons employed under civil law contracts. After all, the lenders’ most desirable group is those with employment contracts – preferably for an indefinite period.
Reason? Concern about the income stability of the applicant. Therefore, if you do not meet this requirement, then be better prepared for the presentation of additional annexes to the contract, as well as the signing of a preliminary contract.
The older you are, the worse your credit …
The borrower’s age is another factor taken into account by banks when calculating creditworthiness. Remember that lenders provide support for a maximum of 35 years. However, not everyone can count on such a privilege … So, the rule is very simple: the older you are, the shorter your loan period will be. And this also means – higher monthly installments commitment.
Interestingly – if you apply for a mortgage yourself, the bank will only be interested in your age. However, when you intend to apply for co-financing with your spouse, the lender will make the loan period dependent on the applicant’s oldest age.
Credit cards “tamer” of favorable credit
During your last visit to a bank branch, did your adviser offers you a new credit card? You decided on it – but did you hide it carefully in a drawer anyway? These types of financial products are really good solutions if you are reasonable and you know the mechanism of their operation. However – for the time of applying for a mortgage you should opt-out of this type of card as well as the debt limit on your account.
Ba – even if you do not use them, and they are in your bank offer, they are considered as monthly liabilities when applying for a loan. Finally, you can change your mind at any time and decide to use the limit or overdraft.
Keeping the family at high speed
Creditworthiness is the ability of the applicant to repay the contracted debt, on the terms set out in the loan agreement. That is why, before granting a loan, the banks carefully verify your monthly income and expenses and check that you can actually pay off the next liability.
The higher the income and the fewer liabilities, the better. However, the cost of living also depends on the number of people living in the household. Banks calculate them on the basis of economic indicators presented by the Central Statistical Office. The fact is, however, that families with many children are in the worst situation. In this case, their income must be several times higher so that they can think about getting a loan.
Troublesome “foreign” currencies
It’s not just operating in high-risk industries that make it difficult to take out a loan. Created by the Polish Financial Supervision Authority, Recommendation “S” specifies that people interested in a mortgage will only receive it in the currency in which they earn income. In addition, banking institutions must operate in accordance with the provisions of the Mortgage Loan Act of 07.27.2017.
Under it, the provisions of the MCD Directive were implemented, which improves the situation of borrowers and obliges banks to grant loans only in the currency in which they receive income. On the other hand, it requires applicants not only stable employment but also sufficient income. Even, in the order of 20 thousand dollars.
The enemy of credit – a motivational remuneration system
You probably like to be rewarded often by the employer. In the end, additional pennies will fall into your pocket. Unfortunately, the incentive remuneration system is not always beneficial from the bank’s point of view. It boils down to the division of remuneration into two groups: fixed and movable. The first is the basis, which is the same every month. The second one is variable and depends on various extras, eg bonuses, overtime bonuses or commissions.
What’s the problem? Well, the salary, which consists of many components, reduces creditworthiness. This is mainly due to the variable amount of income. Therefore, when making a credit analysis, the bank only considers the fixed value. So if you are in a similar situation, it’s best to know which loan offer you can use and get ready to document your income from the last 3-6 months.
Don’t be fooled by the decreasing installment!
When applying for a loan, many borrowers have a mortgage dilemma. Which installments should you choose – decreasing or equal? Generally, in both cases, the loan installment consists of two parts: principal and interest. If you think a random choice doesn’t make a difference then you are wrong! The choice of installments is crucial for your credibility assessment!
In the decreasing installment, you will definitely lower your credit standing! The reason is trivial – in the first loan period, they are higher than equal installments. However, their choice may be beneficial, because throughout the entire loan period – the capital part is equal, and this means a cheaper loan.
In turn, by choosing equal installments your creditworthiness will not change – but you have to take into account that by paying the fees according to the schedule you will pay the institution a higher sum, due to interest.
The last but equally important factor that affects the borrower’s overall assessment is the number of loan applications submitted. It is worth limiting them to 3-4 queries because too many requests sent to the bank will reduce the scoring, and thus present you as a person willing to borrow and unprotected financial situation.