Taking on a home loan is one of the biggest commitments you can make in life, which is why you’ll want to have all of your affairs in order before signing on the dotted line. Lenders are typically reluctant to loan money to anyone who is yet to demonstrate their ability to manage money effectively, but by focussing on the following points, you can drastically improve your chances of securing a loan.
Eliminate Credit Card Debt
Cleaning up your credit situation should be a top priority, because nothing will scare a lender away faster than outstanding debts. If you are in debt, you should have a plan in place to pay off everything you owe before you think about making an appointment with a lender. Look at your weekly income and expenses, and think about whether there are any unnecessary costs you could cut, or replace with something more affordable. Then, take the extra money you save and put it towards what you owe. The process is simple, and you can make it work for you as long as you have a great deal of commitment and a long-term focus.
Do Your Research
It’s never going to be easy to secure a home loan, but it is worth shopping around when it comes to your lender. Today’s brokers and lenders can be easily accessed online, and the modern buyer doesn’t even have to leave the comfort of their living room to get a better handle on what they can and cannot afford. Of course, not all lenders are equal in terms of loan offers or expectations of borrowers, and investigating available loan options could save you a great deal of money down the track. You may not realize how many options are on the table, how easy it can be to make a comparison, or how that information could help you negotiate a better deal. Before you sign up for one of life’s biggest commitments, make sure you have armed yourself with as much information as possible.
Boost Your Earnings
Whether you’re already employed full-time and busily climbing the corporate ladder, or just out of university and working several part-time jobs, increasing your income is always a possibility. It could mean putting in a little more effort to prove to your boss that you deserve that promotion, or setting up new income streams on the side. However you go about it, increasing your regular income will have a huge impact with your lender, especially as you’ll have more money to funnel into your savings. What’s more, once you secure your first home, a few extra dollars in your account will make it that much easier to invest in home improvements that will, in turn, add long-term value to the property.
Save a Strong Deposit
If you’re having difficulty finding an offer with a reasonable interest rate, you’ll need more bargaining power, something which often comes in the form of a hefty lump sum. Setting up an automatic deduction from your spending account into your savings is a great deposit-building strategy. Doing so will mean you’re always inching closer to your goal without even thinking about it, while also demonstrating your money-saving ability to prospective lenders. Choose a savings account with a decent interest rate percentage, and you’ll be in for even more bonuses in the form of extra cash.
Improve Your Credit
Like your deposit, your credit score will have an impact on your borrowing power with your lender.
Assuming you’ve dealt with any credit card debt, it’s time to make your payment schedule a priority. A history of paying rent and bills on time will go a long way to improving your score and your attractiveness to lenders. Checking your credit report is another crucial step to placing yourself at the top of the pile, and something you should be thinking about at least six months before you apply for a mortgage. You might find information which is outdated, irrelevant or even belonging to someone else, all of which could affect your borrowing power unless you take steps to correct it.
Build Yourself a Safety Net
Putting everything you save towards a deposit can seem all-consuming when you’re aiming for home loan approval, but it may not serve you well when your lender wants assurance of your ability to handle the ups and downs of life. Ideally, you should keep some of your money separate to your deposit fund in case you find yourself out of work as a result of illness, injury, or being made redundant. A good insurance policy can also help you cover the gap in this situation, but for those who don’t have the funds to put towards that kind of cover, your savings can serve much the same purpose.
In the process of securing your first home loan, it can feel like an arduous process, but keeping the long-term rewards in mind will make it all seem worthwhile. With enough preparation and hard work, you can make sure you never need to make another rental application, and for most renters, that alone is reward enough.
