5 Things to do Before you Apply for a Home Loan
Applying for a home loan involves more than filling out a form. To ensure your home loan application has the very best chance of approval, it’s important to take some steps before you even apply.
1. Get your finances in order
Ultimately, lenders want to make sure you can repay your home loan, so naturally much of the application process involves proving that you can. Lenders will delve into your financial history to determine whether or not you will make a reliable borrower. It is therefore important to get your finances in order at least 6 months in advance.
Start by consolidating any debts: multiple credit cards and personal loans don’t signal a stable financial position! You should also reduce credit card limits. Even if you don’t max out your credit card, the limit is the only thing that a lender will consider – a higher limit means greater potential debt and liability.
Demonstrate financial stability by making regular deposits into a savings account. This will show a lender that you can commit to regular payments. You may have already been doing this to save for a deposit, in which case, keep up the good work!
A lender will usually ask for 6 months’ worth of statements and financial records, so it’s important to stay on top of all your card or loan repayments. Ensure, particularly during the months leading up to when you apply, that there are no overdrawn periods.
2. Conduct a credit check
With a credit check a routine part of any home loan application, it will come as no surprise that your credit score can make a big difference to your chances of being approved as well as your borrowing capacity.
A bad credit score can dramatically reduce the amount a lender is willing to lend you – and if they are willing to approve your home loan at all. Get ahead by conducting your own credit check before you apply for a home loan.
You can conduct your own credit check easily through a number of free online providers. If a credit check reveals a black mark on your credit history or you find you have a poor credit score, you may like to hold off on your home loan application and work towards improving your credit score instead. Applying for a home loan with a good credit score and history improves your chances of approval and securing a better rate.
3. Consider all costs
Home buyers are well aware of the need for a deposit, but what about the other costs? Buying a home comes with a number of upfront costs including stamp duty, home loan establishment fees, legal fees and home and contents insurance.
Before you apply for your home loan, ensure that you have enough saved up to cover your deposit as well as the upfront costs. If your deposit is less than 20% of the purchase price, then you will need to account for lender’s mortgage insurance (LMI) too. This is usually included in your overall home loan, but it is necessary to consider when organising your finances and future planning.
4. Prepare Paperwork
Home loan applications can be completed quite easily online, but applicants will still have to do some legwork when it comes to documentation and paperwork. Before you apply for a home loan, spend time collecting the relevant paperwork. Most home loan applications will require the following:
- Proof of identity documents such as passport, birth certificate and driver’s licence
- Bank statements from the last 6 months
- Last 3-4 payslips and most recent group certificate
- Tax returns from the last 2 years
- Business tax return for self-employed home loan applicants
- Statements from any existing loans to show the loan amount and repayment history
- Details of assets such as property, cars or investments
- Details of credit cards including limits and repayment history
5. Shop Around
Before you apply for a home loan you should do your research and compare the products and services offered by different lenders. Applying for multiple home loans can be detrimental to your credit score, so it’s important to only apply when you have decided on a particular lender.
Use comparison websites to compare hundreds of home loan products on the market. You can also use free calculator tools through the Mortgage House website to determine your borrowing capacity, repayments and best available rate to help you find the right home loan product.
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one. If you’re thinking of applying for a home loan, you can Apply Online today to get started!