When buying your dream home, making sure you can get a home loan is the first step.
Buying a home can be a stressful and emotional time, getting your mortgage can be just as stressful. While it used to be just about the interest rate, these days it is tougher to get an approval from a lender. Like interest rate cycles, lenders also have cycles with their lending policies. Knowing what a lender looks at when submitting your application is vital. Here are a few tips to help ease the stress.
When buying a house, making sure you have your deposit is common knowledge. How much of a deposit is also important, have you saved a 20% of the purchase price. It used to be easy to get a loan for 95% of the purchase price, these days lenders look much harder at these loans.
If you haven’t saved your 20%, lenders mortgage insurance may also be payable, this can add considerable cost to your loan, on a $500,000 loan it can be as high as $16,000. And remember this insurance doesn’t cover you, it covers the lender in case you cannot pay your loan.
Finally, it is not just about your deposit, make sure you have enough money to cover costs like stamp duty and legals. A good savings plan will demonstrate to a lender you have the capacity to repay a loan.
Debts can impact on your ability to get a mortgage in two ways.
Firstly, if you have outstanding debts with a number of lenders this may impact how much you can borrow. Lenders when looking at serviceability include the repayments of any existing debts, the more existing debts you have the lower the amount you can borrow.
Secondly, your repayment history on existing debts. If you are late paying your debts or have a default, this will impact on your ability to get a loan. Making sure you repay all your debts on time and are paying down your debts will help.
This is where I recommend working with a broker. You financial or employment situation may not suit every lender. A good broker will know which lenders are more likely to approve your loan.
Remember most lenders now use credit scoring to help in their decision to lend money. Understanding what impacts your credit score is vital, things like a change in job, applying for credit or a recent move can impact on your score.
Finally, understand what you can afford. Being clear in what you are comfortable repaying is important. One lender may say you can’t afford a loan whereas another may think differently. Work with your broker to determine how much you are prepared to borrow and then find the lender that can meet those requirements.
4. Get pre-approved
Occasionally, we see clients who have been successful at auction without having a pre-approval in place. This just adds to the stress, lenders these days won’t turn around a loan approval in 24 hours.
Getting a pre-approval before looking at houses can remove some of the stress. You will clearly know how much you can borrow before bidding at auction, or falling in love with a house you can’t afford.
A good mortgage broker will hold your hand throughout the process, guide you through the pitfalls and if you can’t afford to buy work with you to get you into the position to buy in the future.