A first home loan can be a daunting experience. With hundreds of home loan products available across multiple lenders it is overwhelming to decide which loan best suits your needs. As mortgage experts, we have experience guiding our clients through the process of obtaining a mortgage and navigating the options to find a loan suitable for their situation.
The more organised you are, the easier the loan application process. In this article, we have prepared a quick guide to help you prepare the basics for your first home loan.
Know your financial position
Before you apply for a home loan it is important that you understand your own financial situation. How much exactly do you need per month for living expenses? And how much can you afford as a loan repayment? Take the time to sit down and write out your detailed budget, then try to stick to it for a month. If your loan repayments will be more than your current rent, try putting the extra amount into a savings account as a test run, to see if you can really afford to live without the extra cash.
Debts and credit card limits
Other debts can affect your ability to repay a home loan and can harm your chances of loan approval. If you have more than one credit card or personal loan, consider consolidating them into a single facility before you start your home loan application.
When a lender analyses your loan application, they calculate your commitments based on the limit of your credit cards rather than the balance. If you have one or more credit cards with a high limit that you do not use, consider reducing it to improve your change of loan approval.
Stability in your lifestyle
When you apply for a loan you will need to provide official documentation to prove that what you have stated in the form is true. To avoid delays in the application process, ensure your documents are prepared in advance. At a minimum, you’ll need to show:
100 points of ID
6 month bank statements for all of your accounts
Last 2 payslips, or 2 years tax returns for self employed income
Details of any other loans or credit cards, plus the last 3 months statements for each account
Proof of any assets you have listed such as share statements or rates notices
Maximise your savings
A solid savings account is an asset for any home loan application as it demonstrates to the bank that you are responsible with your money and have the means to overcome unexpected expenses. It will also help you cover other costs related to the home loan such as stamp duty, solicitor fees, government fees and other taxes.
Keep an eye on your credit rating
Your credit report shows details of defaults and other credit infringements, bankruptcies and judgements, details of any credit/loan products that you have held in the last two years, whether your repayments were made on time and details of any utilities (phone, electricity, water etc.) payments that were made more than 60 days after the due date. To maintain a good credit rating you must ensure that payments for any loans or utility contracts are made on time and minimise the number of credit facilities you hold. What’s more, lenders can see how many other credit checks have been performed in the last year, so it’s important to only apply for a loan when you have chosen the right product rather than submit multiple applications.
Organise your paperwork
Lenders prefer applicants with a stable and predictable lifestyle. If you are considering changing careers it may be best to wait until your loan application has been approved, as most lenders prefer a history of at least six months with one company. Similarly, many changes of address may indicate rental problems, so applicants with a stable address (at least one year in the same rental) are preferred.
If you are self-employed there may be further difficulties in the home loan approval process. Ideally, you will be able to show at least two years of positive cash flow with an amount that can cover the loan repayments plus expenses. There are still loan options available for individuals who do not meet this requirement, however in this instance you may be charged higher rates.
Although buying a new home can be demanding, it is a worthwhile long term investment and can be the first step toward financial freedom. Here at Track Financial we have helped hundreds of clients with their home loan applications and we’d love to sit down with you to talk you through the process. If you’re considering a new home loan, contact us to book an appointment and let us help find the best loan for you.