How To Qualify for a Home Loan: 5 Easy Steps
Though taking out loans is typically frowned upon, a home loan, or mortgage, is considered “good” debt, as it helps illustrate responsibility and stability. Mortgages are so popular the industry makes up over 68 billion dollars in Australia alone.
However, if you’re unsure how to apply for and qualify for a home loan, you may be hesitant to begin the process. After all, there is a lot of financial jargon and terms that may leave you scratching your head.
Luckily, the following guide can help offer tips and advice to help you secure a home and obtain the home of your dreams.
1. Speak to a Broker
Before beginning the process, you should speak with a broker to better understand your eligibility for a loan.
Brokers work as a middleman between you and the bank, which allows them to scour dozens of financial institutions and lenders to help secure you the best rate. However, this is if you choose to pay for their services.
A consultation with a broker gives you an idea of your options. In many instances, working with a broker helps qualify you for loans that otherwise may not be available to you based on your situation. Again, this is only if you choose to work with them.
2. Look Into Loan Options
Next, you’ll want to look into the different types of loans and which ones you’ve pre-qualified for.
A popular option for those who may have trouble securing documents to secure their loan is a low-doc loan. As the name suggests, this is ideal for those who are self-employed or cannot provide payslips to prove their income. However, the interest rate on these loans tends to be higher.
However, you may also want to look into introductory loans. These are an ideal option for first-time borrowers, as they typically have the lowest interest rate. These loans also have fixed interest for the first year, preventing it from rising until after 12 months.
If you’re currently moving properties for a job or for any other reason, you may find it challenging to handle two payments at once. Luckily, you can apply for a bridging loan, which provides a grace period to sell your current property while moving to the new home.
Though these are just three popular options, there are many more loan choices. Ensuring you research them all to find the best option for your needs is crucial for your financial future.
3. Understand the Factors That Influence Approval
Next, you’ll need to look into all the various aspects of your financial history that will affect your loan approval before you submit the application.
Your income will play a significant factor in the likelihood of securing a loan. If your monthly mortgage payment is a substantial amount of your income, you may not be approved, as lenders will consider other expenses that could take priority over your payments.
Even if your income is enough for a lender, they’ll still look into any collateral you own, which they would then possess if you fail to pay your loans. In many instances, the collateral is the home itself, so if the bank or lender thinks they could easily foreclose and sell the property, it may be easier to secure a loan.
Finally, one of the most important factors that lenders will consider when approving you for a loan is your credit history. This indicates your ability to repay debts in a timely manner. Similarly, your credit history will reflect how many loans you’ve taken out and whether or not they’re considered good or bad debt.
4. Complete the Application Process
Once you’ve learned about your loan options and reviewed your credit history, it’s time to fill out the application. While the process will vary depending on what type of loan you’re applying for, in general, you’ll need similar information.
Most loan applications require proof of income, identity documentation, a contract of sale, bank statements, and credit card statements. You’ll also need to determine how much money you plan on borrowing, as you’ll need to be approved for that amount.
In many instances, purchasing a home requires an 8-10% down payment, so that may be what you’re looking to take out. However, you can find more info about calculating how much you’ll need to take out.
5. Learn How to Increase Approval Chances
Finally, there are some things you can do to help improve your odds of being approved for a loan. If you plan on waiting a few years before purchasing a home, improving your credit score is a surefire way to increase the likelihood of approval.
You can also enlist the help of a co-signer when applying for loans. If your co-signer has a higher income than you do, it may be easier to get approval. However, this is tricky as if you fail to make payments, you can hurt the credit score of your co-signer.
Another way to improve your chances is to find a secondary income. By showing that you have more money, lenders are more likely to find you trustworthy and capable of meeting your monthly payments.
Your Guide on How to Get the Best Home Loan
Though the process can be overwhelming, keeping this guide in mind can make the process of applying for loans much more manageable.
If you’re ready to apply for a home loan, thanks to the help of this guide, you’ll want to check out the rest of our website. There, you’ll find more of the best home and real estate tips and tricks to make your property perfect.
