The Danger of Too Many Home Loan Applications

When you are searching for the right home loan, it can be tempting to apply to several lenders in an effort to land the highest loan amount at the best interest rate.  However, multiple loan applications can actually affect your credit rating, and impact your ability to be approved for a loan at all.

Why does this happen and how can you protect yourself during the hunt for the perfect home loan?

“Hard” enquiries and your credit score

Whenever you apply for a loan, the lender will make a credit check, known as a “hard” enquiry. Lenders are looking for potential borrowers with high credit scores, as these scores are an indication that the borrower is a good risk and most likely to pay back the loan.

Yet ironically, these “hard” enquiries can negatively affect your credit score, especially if multiple enquiries are made within a short timeframe. Your credit report records your credit application history for up to the last five years. You might be turned down by one lender and then the next lender to do a credit check will see a rapidly reduced credit score, making them less likely to approve you for a loan.

Boost your score

If you are not sure why lenders are turning you down, acquire a copy of your credit score and see how you can improve. Other factors affecting your credit score are your overall debts and the amount you have saved for a deposit. Your credit score will look healthier if you consistently commit to paying your bills on time and if you save a little longer to increase your deposit. Minimise loan applications until you are confident your credit history is squeaky clean.

Maintain steady employment

If you are ready to apply for a loan, it’s not a good time to start job-hunting. You might be confident that you can step straight into another role, but your lender will only see that you have an unstable employment record. Hold onto your current job until after you have secured your loan, or postpone the loan application until you’ve moved into the next job and settled there for at least six months.

Research online

Rather than sending in multiple home applications and hoping for the best, thoroughly investigate potential lenders online to find the right fit for your circumstances. Even with significant savings and a strong history of paying your debts on time, there could still be some aspects of your financial profile that deter some lenders. If you work as a contractor or freelancer for example, some lenders will consider you a bad risk, as your earnings may fluctuate. Alternately, even if your credit history is good now, any past incident of defaulting on a debt could potentially overshadow your profile. Find a lender who welcomes someone with your history.

Talk to a mortgage broker

A mortgage broker can remove the stress of searching for the right loan, by identifying the right lender for you. With the assistance of a mortgage broker, you can minimise the number of loan applications and focus on a small pool of lenders who offer loans suited to your financial circumstances. This way, you are more assured of loan approval the first time, and you can be confident that the loan is tailored to your personal circumstances. Your mortgage broker will also assist you with all the paperwork while explaining the finer details of your loan.