4 Smart Tips for Securing a Home Loan
Wednesday, May 16, 2018, 6:00 PM | Leave Comment
When it comes to major life decisions, buying a house ranks extremely high on the list.
It is no surprise then that many hopeful homeowners get disappointed when their mortgage loan does not get approved.
While this can happen for a variety of reasons, more often than not it is because of a lack of proper preparation.
Mortgages can appear confusing and complicated, but following these steps will give you the best chance of getting approved.
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Increase Your Credit Score
Your credit score will be the first thing your loan officer will look at when considering your home loan application. It makes sense then, that you should know your credit score beforehand, and take steps to make it as high as possible.
Paying all of your bills on time, staying on top of your credit report and clearing your credit history will all have a positive effect.
If, on the other hand, you do not have a credit history, you will most certainly need to ensure you will be able to show lenders that you have a clean credit score. This is best done by getting and using a credit card for a while before submitting your application.
It is not enough just to show that you have been using a credit card, but that you have been using it responsibly. This means demonstrating sustainable and controlled spending habits and avoiding lavish or unnecessary purchases.
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Pre-Approval
Home loan pre-approval is just that, an early indication that a lender will approve your home loan, given before your mortgage loan is fully improved. This is a smart move, as you will know in advance how much money you will have at your disposal for bidding on properties. It also removes the highly unpleasant possibility of falling in love with a house that is above your budget.
Getting pre-approved for a loan is not that difficult; all you need to do is submit your personal and financial information to a mortgage lender and wait for their response.
When your submission is processed, the lender will send you a pre-approval letter, valid for 3-6 months, stating how much you can afford and at what interest.
These funds will be available as soon as a vendor accepts your bid. Not only does it give you peace of mind, but sellers often favour pre-approved buyers.
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Save your Money
Having no cash in your bank account is a sure way of getting your home loan application rejected.
While zero down mortgage loans were possible in the past, the mortgage lenders of today are more cautious and always require a down payment. The minimum down payment is 3.5%, but aiming for at least 20% will reduce your private mortgage insurance and knock down your mortgage balance and reduce mortgage stress.
Having some cash in hand also helps to cover closing costs that are usually around 5% of the mortgage balance.
There are also other expenses you should be aware of; such as title searches, credit report fees, application fees, home appraisals, home inspections and others. Having a secured loan is great, but you will definitely need some hard cash along the way.
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Avoid Debt
In a nutshell, the less you owe creditors, the more likely you will be to qualify for a mortgage loan.
The lender will evaluate your debt to income ratio before approving your loan, and can offer a low mortgage or even turn you down if you have a lot of credit card debt.
As a rule of thumb your monthly debt payments, including the potential mortgage, should not exceed 36% of your gross income for that period.
Even after you are approved for a loan, avoiding new debt is crucial while going through the mortgage process, as lenders check your credit one more time before closing.
If you take on additional debts during this time, it can result in the mortgage closing.
The number of first time home buyers in Australia has grown significantly in the past years, with a strong upward trend. This is in no small part thanks to several incentives for first time homebuyers.
As long as you do your homework, save up money, have all of your bases covered and take advantage of local incentives, you are in good stead to get your home loan approved.
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