How to get approved for a home loan
How does the home loan approval process work? To get an idea, here’s our step-by-step guide to help walk you through it.
Everyone wants to get a good deal on their home with low rates and good terms. But is there a secret to getting approved for a mortgage? Lenders are pretty transparent about what they’re looking for in a borrower. If you’re unsure about how to get a home loan, here are a few tips to make your application look stellar.
Maintain a good credit score
Your credit score is one of the first things lenders look at when you apply for a mortgage. It’s used to assess your ability to repay the loan. The higher your credit score is, the better your chances of getting approved and having lower rates because it tells lenders that you’re likely to make your payments.
Beyond the score itself, lenders also look at your credit history to get an idea of your spending habits and financial situation. Those who pay off their bills and debt on time without any issues are more likely to receive loan approval compared to those with a long history of late payments.
Keep your debt under control
Lenders are typically wary of borrowers who have accumulated a lot of debt over a short period of time. If you have a lot of outstanding debt, it would be best to pay it off first or minimise it as much as possible before applying for a home loan.
Before applying for a loan, it’s best to review your finances to see where you’re at. Use this time to figure out if you can pay off some of your debt immediately and see which ones have the most impact on your finances. Doing so could also improve your credit score.
Bulk up your savings
If you can show proof of genuine savings, you’re already on the right track. Take note, genuine savings refers to money you’ve saved steadily over time. This does not include sudden windfalls or cash gifts.
Having significant genuine savings shows lenders that you have responsible financial habits and can manage your money. It also tells lenders that you can pay off your loan should anything unexpected happen.
Building up your savings account may take time, but it has very little downside. With good savings, you’ll enhance your mortgage application and have funds left over in case of emergencies.
Put down a sizable deposit
By providing a larger home down payment, you’re essentially borrowing less from the lender. This is seen as a good thing because it lessens the loss for lenders in the unlikely event that you default on a loan. You’re also more likely to get a better deal on your loan with lower interest rates and more flexible loan features.
Having a deposit of at least 20% of the purchase price of the home will also mean you won’t have to get Lenders Mortgage Insurance (LMI). A sizable deposit also helps you save money over the life of your loan.
Know your borrowing power
Borrowing way above your means is one of the main reasons for loan rejection. Lenders are typically keen on letting people borrow money if they don’t think they can afford to pay it back. An easy way to avoid this is using an online borrowing power calculator. With this online tool, you can quickly see an estimate of your borrowing capacity factoring in your income, expenses, and outstanding debts.
You could also try to pre-qualify for a mortgage. This lets you see how much a lender is willing to let you borrow so that when it comes time to apply for a formal home loan, you know what price range you should aim for.
Avoid making major career shifts
Your employment status could have an effect on your loan application. Since your job affects your income, lenders may factor that in when considering your application. For example, a potential borrower with a stable job who has been working in the same industry for a few years would likely have a stronger loan application than one who is unemployed.
Don’t submit too many home loan applications
Submitting as many mortgage applications as you can to see which one gets approved may sound like a good idea however it’s anything but. Applying for multiple loans at the same time is inadvisable because it damages your credit score. Loan applications require a hard check into your credit, which lowers it by a few points. It may also look like you’re simply desperate for cash which could make lenders wary about your ability to pay back the loan.
Talk to a lending specialist
There is no one surefire way to get approved for a home loan. To make things easier for you, talk to a friendly lending specialist like the ones at loans.com.au. With their expert advice, you can learn more about the loan application process and what requirements you need to get approved for a home loan. You can also talk to them about your home loan needs to find the best finance solution for you. Arrange a call with them today or get in touch by calling 13 10 90.
Find out in under 2 minutes if you qualify for one of our low rate home loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
