Applying for a home loan can often seem like a complicated and stressful process. With so many factors influencing the application and approval process, it’s easy to understand how homebuyers could find the whole process confusing and overwhelming.
To help you navigate your home loan journey, we’ve put together some tips for securing a loan and putting yourself in a position to gain approval. From reducing your debt to proving you can keep up with repayments, follow these simple tips and you could boost your chances of a favourable home loan decision.
1. Start a savings plan
In recent years, mortgage lenders have become considerably more cautious about how they approve credit applications. Deposits don’t come cheap, and research shows that almost 40% of first homebuyers in particular have relied on parental or family assistance in order to get into the market. In short, the more cash you can save up before making an application, the better your chances could be of getting approved.
While a deposit of 5% of the purchase price is generally the minimum requirement, having a 20% deposit will mean you’ll avoid paying Lenders Mortgage Insurance, which adds to your monthly repayments. Plus, the higher your down payment, the less you’ll have remaining on your balance, so you could be in a better position to pay your mortgage off sooner.
It’s can be good idea to set up a savings plan (on your own or with a partner) where you put away a set amount each month towards your home loan deposit. Work out what you can afford after your other expenses to ensure you meet your agreed amount – and if you can pop a bit more in from time to time, all the better.
2. Reduce your debt
Having a high level of debt could impact your ability to get approved for a home loan, as well as the amount you’ll be eligible to borrow. The more you can reduce the amount you owe creditors, the better your chances of getting approval.
To make yourself more attractive to mortgage providers, aim to reduce your existing debt levels as much as possible prior to applying for a home loan. This might mean reducing the outstanding balance on your credit card or paying a little extra on your car loan to bring down the amount you owe.
In addition, try to avoid accumulating new debt during the mortgage process, such as using your credit card to make purchases or taking out new loans.
3. Get to know your credit score
Your credit history can have an impact on your home loan application, yet research shows that 73% of Australians don’t even know their credit score. The good news is, obtaining this information is a quick and simple online process – and knowing where you stand can help you work towards improving your credit score if it’s too low. You can get your credit score for free at Credit Savvy.
If you frequently miss repayments on other loans or fail to pay a bill on time, your credit score can be negatively impacted – and this could affect your ability to obtain a home loan.
Once you’ve got a copy of your credit report, check the recommendations for how to boost your score and do your best to clean up your credit history going forward.
4. Keep up with your repayments
Demonstrating a good repayment history can put you in a better position in the eyes of mortgage lenders. Negative events such as frequent missed or late repayments could act as a black mark against you, even if these events haven’t yet impacted your credit score.
Bank statements showing on-time repayments for your rent, car loan, credit card, or other liabilities could reassure a bank or home loan provider that you’re capable of keeping up with your required payments without delays or defaults. Think about prioritising timely repayments in the run-up to your home loan application to make sure you never miss a payment.
5. Seek pre-approval
Getting pre-approved for a home loan before you start house-hunting can be beneficial in a number of ways. For starters, you’ll have a clearer idea of your budget so you can narrow your search and avoid over-bidding. In addition, you don’t run the risk of setting your heart on a particular property, only to find out it doesn’t fit with what you can afford.
To obtain pre-approval, you’ll need to contact a mortgage provider and submit some details about your finances so they can assess your situation. The pre-approval process will cover things like the amount you’re eligible to borrow, as well as the interest rate you’ll pay on your loan.
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