If you are considering buying a home, you are probably wondering how to increase your chances of getting approved for your home loan.
Each lender usually has their own loan and approval process. For first-time buyers, it can be a little confusing not knowing if you will actually be successful. But fear not, there are many things you can do to improve your chances of getting your application approved.
Save regularly for a deposit
The larger the deposit, the less you need to borrow and the chances of meeting the lender’s minimum loan / value requirements are higher.
By showing true proof of savings, you are signaling to the lender that you are financially disciplined enough to be able to meet your potential monthly mortgage payment. Typically, lenders ask you to show at least three months of actual savings. If you can show more than three months, it can improve your odds with your lender.
Building a good credit score
Before applying for a home loan, consider getting a free copy of your credit report from Veda, D&B, or Experian. This will allow you to see exactly what lenders will be looking at when you apply for a home loan. Make sure to check if there are any errors and try to fix them as soon as possible.
Lenders look for people with a high credit score because the higher the score, the less likely you are to default on your mortgage. A person with a high credit rating usually honors their credit card, other loans, or debts on time. Lenders want the assurance that you will make your repayments smoothly.
Live within your means
When applying for a home loan, you must show copies of recent bank statements to potential lenders to prove that you can live within your budget. Three to six months before applying for a home loan, remember to track your expenses and limit them to the necessities and a simple lifestyle. You don’t want the lender to think that you are a shopaholic who cannot manage your expenses. Also, try to limit your spending on things like alcohol and gambling.
If you show the lender that you can afford to pay your bills, have savings, and live a decent life, then your chances of getting approved may increase.
Delay major purchases
If you’re in the market for a home loan, consider taking a break from big purchases like living room furniture, buying a new vehicle, buying a new phone, or taking an extravagant vacation. All of these things can come after purchasing your new home. Unless it’s an urgent purchase, consider not purchasing this shiny new item.
Can’t find a new job
You would think that getting a new, better paying job while getting a home loan would be beneficial, but in reality, it is damaging. A lender wants to see stability, and unfortunately changing jobs is not seen as a sign of stability. They want to see that you have been at your job long enough and that you are paid enough to afford a loan.
Most lenders require you to provide copies of three to six of your most recent payslips, to prove that you are earning enough income to pay off your potential mortgage.
Lower your debt-to-income ratio
When applying for a home loan comes the fact that you will have to take on enough debt to buy a house. Consider paying off a large debt, whether it’s a personal loan, car loan, or credit card. The lower your debt, the more you can borrow for your home. By having low debt, you will be able to show the lender that you can handle your money responsibly.
Stick to one mortgage application at a time
Every home loan application you make is credited to your credit score. While it can be helpful to compare mortgage loans from different lenders, you are more likely to be approved if you do it one at a time.
Lenders don’t like to see potential clients act in a hurry, and they may take this as a red flag when investigating your credit rating.
If you are considering buying a new home, check out Mozo’s home loan comparison chart.
^ See information on the Mozo Experts Choice Home Loan Awards
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