Even though interest rates are rising, this is still a good time to consider purchasing a home or refinancing. Experts are looking at Perth (and Western Australia in general) as the location of the next big property boom. The time is right for buying a home or locking in a lower interest rate on your present loan. Want to learn how to improve your chances of getting a home loan? Read on for top tips from our mortgage experts.
How to Improve Your Chances of Getting a Home Loan
Whether this is your first home or you have purchased other properties in the past, there are several steps in the process of buying a home. An excellent place to start is getting pre-approved for a mortgage.
A home loan pre-approval comes from a lender who agrees, in principle, to lend you a specific amount of money to buy a property. While it is not a loan, a pre-approval mortgage agreement shows how much a lending institution will allow you to borrow. It also is the beginning of a relationship between you and the lender. Also, sellers and selling agents look favourably at buyers with pre-approval. It is in your best interest to start the loan pre-approval process as soon as possible.
Often, potential buyers are not sure how to get a pre-approval mortgage. You can get pre-approval through your lender or with help from a mortgage broker. You will need to provide the lender with identification, proof of income, and credit information. It may take a week or two for a lender to decide on your pre-approval mortgage amount, so an early application is best.
Although pre-approval is helpful in the process, you will need formal loan approval before you can move forward with buying your home. There are several tips for you to consider that will help you get loan approval.
Have A Good Credit Score
A low credit score is one of the top reasons lenders decline loan applications. This is because your credit score is a snapshot of how you manage your finances.
Several factors influence your score, and consumers do not always understand them.
- Payment History – Lenders will use the past to predict the future by looking at if you pay your bills on time each month or if you have defaulted on loans
- Credit Inquiries – Having several companies checking your credit score work against you, so limit your applications to one or two lenders.
- Credit Utilisation – This includes facts like if you have several credit cards maxed out or very high limits on your credit cards. Unfortunately, having a high credit limit is viewed as if you owe that amount on a credit card. This is because you can access that much credit and can charge that amount anytime.
- Review Your Credit History – The last thing you want is to be penalised for an error on your credit report. Get in the habit of reviewing your information to make sure there are no errors.
There are several ways you can improve your credit score, including:
- Paying down credit card debt
- Consistently pay your bills on time
- Request reductions in your credit limits
- Try to pay off your credit cards each month
Demonstrate Stable Employment and Income
When applying for a home loan, you ask the lender to go out on a limb for you in good faith, believing you can and will make timely repayments until the loan is paid off. In this scenario, it is easy to see why being able to show lenders that you have stable employment and income is vital.
You can demonstrate this by having a steady job for at least two years and an employment history without sizeable gaps or gaps with reasonable explanations such as schooling.
Have a Downpayment
You will need to have a downpayment to put towards your home, as lenders do not offer 100 per cent loans. Generally, having 20% of the purchase price is advisable because you will be able to avoid paying the lender’s mortgage insurance (LMI) each month. Otherwise, a charge will be added to your monthly repayment to protect the lender if you default on the loan.
You are correct if you think 20% is a considerable amount of money to put together all at once. Experts recommend that you begin saving far in advance of house hunting. Usually, lenders will want to see proof of three months’ worth of actual savings. Some tips for saving include:
- Cutting unnecessary expenses
- Putting aside a set amount of money from every paycheck or each month
- Get casual work to supplement your savings
- Consider moving in with your parents while you save
- Set small, attainable goals rather than a single oppressive goal
Maintain Organised Financial Documents
Lenders will request several documents when you apply for a home loan. These include:
- Personal identification documents.
- Proof of employment and income such as pay slips, tax returns or bank statements.
- Evidence of your cost of living, savings, and your deposit, like bank statements.
Having these documents organised and easy to access is essential as you apply for a home loan. Additionally, having your important papers sorted and in a single location is a good practice.
- A simple system of folders in a secure location is an easy way to keep your essential documents sorted
- You can also create digital files of the papers you need
- Use a simple and systematic naming system so you can find what you need when you need it
The organisation is vital when you are applying for a home loan. Having your pre-approval set, knowing your credit history, a stable employment history, and a down payment will all help you as you look for your dream home.
Buying a home is a process, but you do not have to navigate it alone. You can get the information and guidance you need from the experts at Quantum Finance. Contact our experts to learn more and to start your journey to your new home today.