How to boost your chances of home loan approval
If you are thinking about buying a home, you are probably wondering how to boost your chances of getting your home loan approved.
Every lender typically has its own lending and approval process. For first time buyers, it can be a bit unsettling not knowing whether you’ll actually make the grade. But don’t fear, there are numerous things you can do to improve your chances of getting your application approved.
Regularly save towards a deposit
The bigger the deposit, the less you have to borrow, and the chances of meeting the lender’s minimum loan-to-value requirements are higher.
By showing genuine proof of savings, you are indicating to the lender that you are financially disciplined enough to be able to meet your potential monthly mortgage payment. Typically lenders ask for you to show at least three months of genuine savings. If you can show more than three months then it may improve your chances with your lender.
Build 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 the lenders will be looking at when you apply for a home loan. Be sure to check if there are any errors and try to fix them as soon as possible.
Lenders look for people with high credit ratings, because the higher rating the less likely you’ll default on your home loan repayments. Someone with a high credit rating typically meets their credit card, other loans or debt repayments on time. Lenders want assurance that you’ll make your repayments without issue.
Live within your means
When applying for a home loan you have to show copies of recent bank statements to possible lenders to prove that you can live well within your budget. Three to six months before applying for a home loan consider tracking your spending and limit it to just necessities and a simple lifestyle. You don’t want the lender to think you are a shopaholic who cannot manage their spending. 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 chance for approval may go up.
Hold off on major purchases
If you are in the market of getting a home loan, consider holding off on big purchases like furniture for the living room, getting a new vehicle, buying a new phone or an extravagant holiday. All these things can come after purchasing your new home. Unless it is an urgent purchase, consider holding off from getting that shiny new object.
Don’t get a new job
You’d think that getting a new higher paying job while getting a home loan would be beneficial, but in reality it’s damaging. A lender wants to see stability, and sadly changing jobs isn’t considered a sign of stability. They want to see that you’ve been in your job for a decent amount of time and being paid enough to afford a loan.
Most lenders ask you to supply copies of three to six of your most recent payslips, to prove that you are earning enough income to repay your potential mortgage.
Lower your debt-to-income ratio
Applying for a home loan comes with the reality that you will be taking on quite a bit of debt to purchase a house. Consider paying off some major debt – whether it be a personal loan, a car loan or a credit card. The lower your debt is, the more you may be able to borrow for your house. By having low debt you’ll be able to show the lender that you can manage money responsibly.
Stick to one home loan application at a time
Every home loan application you make goes as credit on your credit rating. While it may be good to compare home loans from different lenders, you will have a higher chance of getting approved if you do it one at a time.
Lenders do not like seeing potential customers acting in haste, and they may consider it a red flag when investigating your credit rating.
If you are thinking about buying a new home, reach out and let’s talk.
Source: Maria Gil
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