For many people, applying for a home loan can be incredibly confusing and difficult. That stress can be compounded if it’s your first time doing so. Though the steps are straightforward enough, there are a lot of things that you need to get right if you want to give yourself the highest chances of success. As if all of this wasn’t difficult enough, financial institutions have become stricter about home lending, going so far as to closely scrutinise even the smallest details in every loan application they receive.
Fortunately, there are a lot of ways to improve your chances of being approved for a home loan. It all starts from enlisting a trustworthy mortgage broker that can help you get through some of the more complex parts of your application. After that, you can further minimise the chances of your loan application being denied, shelved, or delayed with the following tips:
Rein In Your Spending
Your expenses are the first thing any prospective lender will look at when you file an application with them. Nowadays, you can expect financial institutions to give them a run-through with a fine-tooth comb, so do yourself a favour by getting ahead of the situation.
Most lenders you speak to will want to see at least three months’ worth of living expenses. To show them that you have a good handle on your money, the sensible thing to do is to overshoot the goal a bit and start getting your finances in order at least six months before submitting your application. This should be more than enough time to give your credit card and bank account statements a thorough look and correct any spending habits that might endanger your application. The idea is to show that you are responsible with your money, and this helps a bank feel confident about lending you some.
Hold On to Your Job
Having a steady job can help lenders feel more confident that you can repay your debt. After all, unless you have a significant amount of money tucked away, you’ll be using the income you earn to make payments to your home loan. Being a chronic job hopper is an immediate red flag to financial institutions, and you can expect it to hurt your chances significantly.
For the most part, banks are more amenable to lending you money if you can prove that you’ve been working for the same company for at least six months, not including any probationary periods. They like it much more if you’ve been with the same employer for longer. If you’ve just started a new job, though, don’t fret. You should still be in the clear if you can show your prospective lender that you were able to hold onto your previous job or stay with your old employer for a significant amount of time.
Show That You’ve Been Saving
When looking over home loan applications, lenders love to see evidence that the applicant is both good at handling and saving money. In general, you should be able to put down a deposit of at least 20 per cent on your new house.
Why is 20 per cent the magic number? This is because borrowing over 80 per cent of the value of your new home will require you to pay lenders mortgage insurance, also known as LMI. This is a type of insurance that protects the lender should you fail to make your payments. Basically, the bigger the amount you can deposit, the less money you’ll need to borrow. The less money you’ll need from your lender, the less LMI you’ll have to pay. Being able to put a significant deposit down also shows the bank that you are a low-risk applicant.
Another thing worth keeping in mind is that buying a home entails other costs such as stamp duty and legal fees. You’ll definitely want to take these into account when saving up for your deposit.
Get Any Other Debts Under Control
Another major red flag that financial institutions typically keep an eye out for is an applicant that is neck-deep in debts. Again, this lowers a lender’s confidence in your ability to repay them should they approve your loan.
Before applying for a home loan with any lender, you should first perform a thorough audit for the things that you are still paying off. These include college loans, auto loans, any credit card debt that may have piled up, and so on. After you’ve cleared those off your ledger, you can consider trying for a home loan.
Be Conservative When Filing Applications
Comparing lenders is one of the most important steps in applying for a home loan, and it definitely shouldn’t be skipped. However, submitting too many applications to several lenders at once is something that will inevitably show on your credit report. Though it won’t have much of an effect on your credit rating, lenders are wary of those who do simultaneous applications. The better option is to compare all of your choices first, identifying the one that’s right for you, and then filing the application.
Applying for a home loan can be frustrating at times. It’s tough to deal with rejection after rejection, especially if you think that you’ve done your best to do everything right. Hopefully, these tips can help.
You can also count on a reliable real estate agent like Gerard Partners to help you through this complicated process. Contact us today!