Buying a home is one of the biggest financial investments for many. This is why financing is often one of the greatest hurdles buyers face when searching for a new home.
If you’re like most people, you’ll probably need a loan to make your dream of owning a home come true. While there’s never a guarantee that you’ll get the home loan you want, there are a few steps you can take to improve your chances of success.
This post will discuss some of the best tips for boosting your chances of securing a home loan. So, let’s get started!
Maintain a good credit score
One of the biggest factors influencing a lender’s decision about approving your home loan is your credit rating. Generally, the higher your credit score, the more highly rated you are by lenders.
This is because people with high credit ratings don’t have major credit infringements and are generally able to make debt and credit card repayments on time. Therefore, a high credit rating means you’re less likely to default on your home loan repayments to lenders.
Unfortunately, most people often end up with poor credit ratings simply because they forget to pay their dues on time. If you’re planning on applying for a home loan soon, try not to fall down this ladder. Set regular reminders so you’re always on time with payments. You can also use Clearscore to get your credit score and keep a regular track of it.
Be wary of unnecessary credit
Another major thing that lenders look at when you apply for a home loan is your access to other credit. If you have a lot of debt, you’ll have to devote a significant chunk of your finances to repaying it. This can decrease your chances of having your loan application approved.
But it’s not just the debt you carry that matters to lenders. Your credit card limits matter as well!
When lenders look at your home loan application, they usually assume that the credit limit on your card is how much debt you can potentially owe.
For example, if you have a credit card with a limit of five thousand dollars, lenders will assume that that is how much debt you owe even if you are up to date with your repayments.
With that in mind, try to pay off and close down credit cards you aren’t using before applying for a home loan. If that’s not possible, try to reduce your card limit to a more reasonable number to increase your chances of success.
Put down a large deposit
The larger the deposit value, the less you have to loan out from a lender and the greater your chances of meeting their loan-to-value (LVR) requirements.
By showing actual proof of savings (in the form of a large deposit), you’re demonstrating to the lender that you are financially stable and disciplined enough to meet potential home loan repayments.
Therefore, making as big a down payment as you can is a good way of increasing your chances of getting a home loan approval. Try putting aside a fixed amount each month for at least six months so that you can go to a lender with a decent-sized deposit.
Curb your spending
Lenders look over your financial records to see where your money goes, which is why you should be prepared to have your finances scrutinized.
When applying for a home loan, you often have to present copies of recent bank statements to lenders to prove that you are someone who can live within your regular budget.
That’s why it’s essential to limit and keep track of your spending for at least a few months before applying for a home loan. Try limiting your spending on just the essentials — you never want to appear as someone who can’t manage their personal finances.
If your bank statements can show that you can afford to pay your bills, have decent savings, live a good quality life, and have an overall solid track record of sensible spending, then your probability of getting a loan approval will go up significantly.
Lastly, you should try to hold off on large purchases like a new car, an expensive holiday, or new flagship phone for at least six months before applying for a loan. Unless it’s a necessary purchase, all these luxuries should come after buying your new home.
Try not to apply with too many lenders simultaneously
While it’s good to explore all your options, you stand a higher chance of getting your home loan approved if you stick to one loan application at a time.
This is because every loan application you make shows up on your credit reports. Even though this doesn’t usually have a huge impact on your credit score, it doesn’t look good and some lenders frown upon it, especially if you’ve been denied a loan multiple times.
It’s always better to compare all your potential options first and apply only after you’ve figured out the right one for your needs.
If you really want to maximise your chances of approval, consider getting help from a mortgage broker.
They have insider knowledge about different lenders, policies, and assessment criteria and can quickly pair you up with a lender that’s most likely to approve your home loan.