Buying a house for the first time is an exciting process but it can also be stressful. Shopping for homes is the exciting part, however, home loan shopping is the part where the process can get pretty complicated especially if you don’t know what you need to get a home loan.
With these guidelines, securing your first home loan can be smooth and easy. Here are few key things you need to do to improve your chances of getting a home loan.
Know how much you can afford
Ideally, you should determine your budget before applying for a home loan. Take a look at your finances to work out how much you can afford to pay so you don’t waste time looking at houses in a price range you can’t afford. You can start by totalling your monthly income, then subtract your monthly expenses. The result you have is the rough amount you can afford to repay on your loan each month. You can use a home loan calculator to get an estimate of your mortgage repayments.
Determine your borrowing power
The amount you can borrow will be different for each lender. But a borrowing power calculator is a handy tool that can be used to find out what your borrowing capacity is. It will base your lending capacity on your income, expenses, debts, number of dependants, and whether you’re buying by yourself or with somebody else.
Make sure you have a good credit rating
Your lender will likely look into your credit history to assess your ability to repay a loan. So a good credit rating can make a big difference to your home loan application. Most lenders require a credit score of 620 or above. To find out your credit score, you can visit websites like Equifax, Experian, and Dun & Bradstreet.
Save for a Deposit
Do you already have a house in mind? You will need to save a deposit before you can get a home loan. Most lenders will require you to pay 5% to 10% of the purchase price for the deposit, but if you can save up more than 20% you can avoid paying Lender’s Mortgage Insurance, and potentially get a lower interest rate.
Prepare your documents
Get all the necessary documents organised before you apply for a home loan. Specific documents required will vary from lender to lender, but the general requirements are a proof of identity, income, assets and liabilities. Having all the necessary documents in order can save you a lot of time during the home loan application process.
Get a pre-approval
Now that you have your documents ready, it’s time to get a pre-approval on your home loan application. A pre-approval on your home loan application will let you know what you can offer to a seller, or how much you can bid at an auction. You can visit loans.com.au to get your home loan pre-approved in just a few minutes.