Are you in the process of looking for a new home? Are you concerned about credit score requirements and getting lender applications to go your way?
If the world of real estate negotiations, mortgages, and mortgage payments is a foreign concept to you, it’s time to get prepared.
Consider following these tips to ensure that you can secure that home loan.
1) Check Your Credit Score
Before applying for any credit, make sure that you have a good credit score.
A credit score is a rating that lenders assign to your credit report. It’s a rating based on how much money you have borrowed in the past and whether or not you have paid back what you owe.
If your score is below a certain level, even if it’s close to where it should be, you may not get approved for a home loan.
When you apply for your loan, lenders will pull your credit report to see if you are eligible. An approved lender will usually require that you show proof of income-to-debt ratio. They also look at your debt-to-income ratio to see how much you can afford and if you can pay back the debt.
If you want to determine your credit score, ClearScore’s credit score check can help you get a clearer understanding of how you look to lenders.
2) Build a Deposit
The bigger your deposit, the more likely you will get a lower interest rate from the lender.
This is because if you have saved up enough, you’ll take a shorter time to pay off mortgage repayments, which can result in lesser interest fees. Besides that, the lender may feel more confident in lending you a large amount and charge you accordingly.
All of these factors play into the interest rate that you pay on your mortgage. It is an indicator of how much risk the lender takes when they give you money for a property.
So get a deposit. This can be money you have saved or assistance from friends and family members.
3) Clear Out Debts
How much debt do you already carry?
If you’re drowning in debt, your credit score will suffer as it’s an indication that you have had difficulty paying them off in the past.
Even if your credit history is good, you may not get approved for a new loan should you have too much debt.
4) Know the Lender Fees and Charges
Certain lenders charge different interest rates and fees to borrowers.
The more you know about the fee structures, the better a deal you can offer. For example, lenders may charge a set-up fee to borrowers who do not live in the property as their primary residence.
There are also valuation fees, legal fees and ongoing service fees that vary depending on the services offered by the lender.
After the main principal and interest, the most common lender fees typically include:
- Redraw fees
- Lenders mortgage insurance
- Home loan processing fees
- Monthly account keeping fees
5) Work With a Mortgage Broker
Lenders are not always willing to offer the best deals. This is why it’s recommended that you work with a broker who can shop around for the most attractive deal on the market.
A broker can help do price comparisons between different lenders, which saves time and effort on your part. They’ll also handle most of the paperwork and legal requirements.
If you’d rather not fret over doing the bulk of the processing yourself, hiring a broker to assist you can take a lot off your plate.
6) Determine Your Home Loan Type
Lenders provide a variety of home loans to accommodate your specific requirements and circumstances, much like other forms of credit or other types of financing. The amount of the loan doesn’t differ, regardless of the kind. The main distinction is in interest rates.
The three most common home loan types in Australia are:
- Fixed-rate home loans: The loan rate is fixed over a period of time. (i.g. 2.5% over 5 years)
- Variable home loans: The loan rate changes to match market rates.
- Split home loans: The loan rate combines properties of both fixed and variable home loans.
7) Secure a pre-approval
When you’ve completed your study and discovered a home loan provider with the best value and price, it’s time to get down to business and start the application process.
A pre-approval is an estimation or assessment of how much money you’d be able to borrow from the lender, based on your current financial situation.
If your lender is a major bank, you can usually apply for a loan online through their website. This may take a few hours or days depending on the bank, and you may have to visit an in-store branch too.
8) Arrange your settlements
After getting the full approval, you’ll have a few more settlements to take care of. You’ll also have to pay the pertinent association dues that come with the lending process and buying a home.
Once you’ve settled the remaining requirements, you can begin to formally settle in and enjoy your new abode. The seller will transfer the rights of the property to you, and this will be the time when you’re finally eligible to receive a home loan.