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Applying for a home loan is the most significant financial decision most people will undertake in their life, and it can be tricky for those applying for the first time. We have put together some advice and tips to help ensure your home loan application is a successful one.
Don't rush your application.
Many home loan applications get rejected because the borrower has rushed through the process and did not give enough details for the bank or lender to make an informed decision. If this is a loan for your first home, you might have waited for years to apply, so take your time and understand how the application process works, and some of the pitfalls you may face, to avoid submitting an incomplete application. Speak with lenders before applying, so you fully understand what they require and how best to present the information.
Get a healthy credit score.
All lenders use credit scores and credit reports to determine how much risk the borrower is and how competent they are at managing their finances. Having a good credit report is one of the most important steps when applying for a home loan. You can check your credit score online and learn how it can be improved, should you fall below the required threshold. If you have had bad debts in the past, this does not mean you won’t get a loan; you need to work to improve the credit report. Most credit reports only backdate by six years, so having exemplary details for this period will boost your chances of a successful application.
Lower the banks risk.
All lenders want to know that their investment in you is likely to be repaid. By lowering the risk to the lender, you increase the chances of a trouble-free application. The most effective way to achieve this is by having a large deposit for the home loan—this way, the equity in the property should cover any losses a lender would incur should you fail to repay the debt. Most banks will seek a 20 percent deposit for a standard home loan. If you can increase this to 30 percent or above, you are making it easier for the lender to pass your application and release the funds.
You can never submit too much information when applying for a loan. Keeping a record of everything will help to let the lender know precisely what your situation is. Display how you plan to finance the repayments through pay slips and get letters from your employers detailing what your salary is currently—they can also outline any future increases or bonuses you expect to get. Keep a detailed record of your previous financial dealings, as lenders may not have all the information when they access your credit report. Many loan applicants are requested to provide further documentation; this may not negatively affect your loan, but it can delay a decision.
Use a guarantor.
Many young people seeking a first-time home loan have little credit history and are just in the early stages of their careers, so their salary is not high yet. If you fall into this bracket, you may find it is easier to get your application accepted by using a guarantor for your home loan. Having a relative co-sign may also help those people who are middle-aged, as most lenders want to see all their debts repaid before they reach retirement age. Speak to lenders before applying, and ask whether you should look to have a guarantor and if your application is likely to be rejected without one. As property prices have increased quickly over the previous few decades, lenders are well-versed in these arrangements and will have advice on what steps you should take.
Get it right the first time.
Having previous home loan applications rejected will affect how a lender views your proposal for a home loan, so getting it right the first time is a huge benefit. Speak with homeowners you know to find out how they applied and what areas will need extra attention. Mortgage brokers and lenders will be happy to have informal discussions on the best way to proceed. They can give you insight into how to best prepare your application, providing you with a greater chance of being successful.
Owning a home is a big financial commitment, but it will also give you a foothold in the housing market so that any price increases in the future will add equity to your home. It is a confusing time for first-time buyers, but the rewards of owning property or land will outweigh any difficulties you have faced so start your application as soon as you have all the required funds, information, and documentation.