Are you hoping to enter the property market and are looking to take out a mortgage? Finding the cheapest home loan is only half the battle, you will need to be approved by a lender, something that is easier said than done. A lender will scrutinize your financial situation and decide how much they are willing to lend you, and at what rate. If you are too risky, your application will be rejected.
So, how do you make sure you are approved for your dream home loan? It all comes down to your financial situation and your ability to make repayments. If you are stuck with large amounts of debt in a low paying job, your chances of approval will be slim. Even if you are in this situation, there are ways to increase your likelihood of being approved.
- History
Your credit history plays a huge role in your success rate for home loan approval. Your credit history is a record of responsible repayment of debt, and as such, reflects how likely you are to make repayments on time. A bad score can be increased by saving money, and successfully repaying small loans. Good credit history will not only boost your success rate but decrease repayment rates.
- Funds
Going hand in hand with credit history is your cash flow. It is important to have a clear picture of your incomings and outgoings as it will help you determine how much you can afford to make on repayments. Make sure you are honest with yourself as some lenders will allow you to borrow more than you can afford to repay.
A high paying job looks great on a mortgage application, but other factors such as length of employment and low overheads are just as important. Think of your funds as your financial picture, the more stable and responsible you are with your money, the easier it is for someone to lend you a large amount of money.
- Do your research
Finding the best lender can be difficult, but its well worth the effort. The best lenders will offer low rates as well as features to help you manage your mortgage. Developing a relationship with your lender can help boost your chances of not only being approved but finding the best possible home loan for you.
- Save up a deposit
Of course, to apply for a mortgage, you just have saved up a deposit. The amount saved depends on how expensive the property is you wish to purchase and how high an LVR your lender is willing to tolerate. An LVR or loan value ratio is an indication of how much you are borrowing compared to the value of the asset. For example, a property worth $500000 with an LVR of 90 means you would need a deposit of 10 percent, so you would be borrowing $450000 as you have made a $50000 deposit.
Some lenders will allow an LVR of 95, meaning you only need to come up with a deposit of 5%. This can get you into a mortgage quicker but can end up being more expensive in the long run as you may need to take out insurance against such a risky loan. To avoid fees and insurance, it’s best to save up at least a 10 percent deposit. Naturally, a bigger deposit will make your loan less risky, less expensive and more likely to be approved.
Applying for a home loan can be nerve-racking and deflating if you are denied funding. Improve your chances dramatically by assessing your financial situation and bolstering your credit rating. Proving long term stability to your lender gives them all the more reason to assist you.
