Picture this; you had a financial emergency that forced you to apply for a payday loan, then you decide to buy a home at the end of the year. Since applying for a mortgage can help you secure your home, you now wonder if you will be able to qualify for it. If you can relate to this, then you are not the only one. Many people have common concerns regarding how payday loans affect mortgage applications.
Taking out a payday loan from vmk may not have a direct impact on your mortgage application. You should, however, beware that a payday loan can appear on your credit report. How you manage this loan is what determines if you can qualify for a mortgage when you want to purchase a home. Though the impact of payday loans is not direct, mortgage lenders are keen on borrowers who have a history of relying on payday loans.
According to research, a payday loan can remain on your credit file for more than five years. This means that the lack of repaying the payday loan as agreed can make it hard for you to qualify for a mortgage in the future. If you pay back the payday loan on time, then a mortgage lender may not consider you high risk when you want another loan for your home. Prompt payments can also help you boost your credit rating.
Mortgage lenders are supposed to view payday loans like any other form of loan as they review your application. If you apply for more than one payday loan, the lender can have a hard time ignoring this. They can view you as a borrower who is not responsible with their finances or in desperate need for cash. Since a mortgage application comes with some additional costs, the lender wants proof that you can make repayments on time. The lack of paying the payday loan as agreed can be a sign of financial vulnerability. This can prevent you from getting approved for the mortgage.
A mortgage lender cannot assess your application focusing on your credit rating alone. They also have to use their criteria to determine if you are eligible for the loan. You can boost your chances of being eligible for a mortgage by taking the time to apply for it. If you took out a payday loan in the middle of the year, give yourself more than six months before you think of applying for a mortgage.
Though a payday loan may seem harmless, it can turn off some of the mortgage lenders. They may view you as a person struggling to make ends meet. It is, therefore, not the payday loan that can disqualify you from getting a mortgage but rather what it represents. If you took out a payday loan years ago and are still concerned about qualifying for a mortgage, start working on building your credit score as you save for the mortgage deposit.