Before you rush out to hunt for your dream home, have you considered how you’ll get a home loan? Getting your home loan approved is much easier when you know what lenders are looking for before you submit your application. Here are some things to consider.
- Proof of income
Banks assess your ability to repay a home loan based on the information you provide them. You’ll need to provide at least two recent payslips and last year’s tax assessment notice to show the bank that your income is stable. If you receive other forms of income, such as rental income, family allowance payments or child support payments, you’ll need to verify these things too.
If you’re self-employed, you may need to provide the previous two years’ worth of business financials. In some cases, you might also need to supply your Business Activity Statements (BAS) to verify that your business turnover has been stable since the last financial year.
The best way to determine which income verification documents you’ll need is to discuss your situation with a mortgage broker.
- Reduce your debts
Before you submit a home loan application, take a bit of time to determine whether you should reduce any personal debts you have outstanding. When lenders assess your suitability for borrowing money to purchase a home, they add up your available income and deduct any repayments you already pay on existing debts.
So, if a large portion of your income each month is eaten away by repayments on personal loans, car loans, rent-to-buy agreements, credit cards or store cards, the amount you’ll be able to borrow is drastically reduced.
Lenders also take into account the entire available credit limit of any credit cards you have, whether you have a balance outstanding on them or not. So if you have a balance of $1,000 on a credit card, but your maximum credit limit is $10,000, the lender will factor in the full credit limit amount when working out how much you can borrow.
- Proof of savings
If you’re buying your first home, lenders will want to see evidence of your savings history. For the majority of people, that means supplying bank statements showing regular deposits going into your savings account over a period of time.
However, what you may not realise is that some lenders may also take other things into account to help verify your savings history. For example, if you pay rent to a landlord or through a rental agency, your rent payments could help contribute towards providing a solid savings history. The objective here is to prove to your lender that you are responsible with your money and your repayments.
- Shop around
It’s common for many people to simply walk into their local bank branch and ask for a home loan. However, your local bank only has access to their own home loan products, so you have no guarantee you’re getting the right mortgage to suit your financial needs.
Every lender offers a range of different loan types with varying interest rates. A fixed rate home loan might seem like an attractive option to many homebuyers, but others may find that a variable rate mortgage with a linked offset account may be more beneficial for their needs. Likewise, some homebuyers may prefer a “no-frills’ discounted variable rate loan with no added features that doesn’t charge any monthly fees.
Ask a mortgage broker to compare the options available from a range of different banks, credit unions and financial institutions. Be sure to ask plenty of questions. After all, it’s your mortgage so it makes sense that you understand the different options available to you and how they could potentially impact your financial goals.
- Check your borrowing capacity
Before you even head out looking for homes, take the time to check your borrowing capacity. Just as different banks offer a range of differing home loan options, they also have varying lending policies for how they calculate how much you’re able to borrow. Some may be willing to lend you more than others, so it pays to check that you qualify for the amount you want to borrow.
Ask your mortgage broker to prepare a pre-approval for you to determine what your maximum borrowing limit is. When it’s time to go house-hunting, you’ll have a clearer idea what price ranges to aim for.
- Choose the right loan
Once you have all your documentation in order and you’ve discussed different loan types, interest rates and your borrowing capacity with a mortgage broker, it’s time to choose the right loan to suit your individual financial needs.
Remember, everyone’s financial situation is different, so what worked well for your parents or your friends may not necessarily be the right loan for your personal circumstances. If you’ve already taken the time to shop around, compare the options available, and speak with a good mortgage broker, you’ll have a reasonable idea which home loan will be right for your needs.
- Apply for a pre-approval
Submitting an application for a home loan pre-approval can help make the entire process easier for you. The lender you choose assesses the information you provide and then issues a ‘conditional’ approval for you to borrow up to a specified amount of money. When you receive your pre-approval, you’re in a position to go house-hunting with confidence.
If you’re ready to get a home loan, take the time to speak with an Assured mortgage broker about your options. Your mortgage broker will work with you to ensure you have the best chance of getting the home loan you want.