03 Sep How to fast-track your home loan application
Many first time home buyers and even some experienced ones fall into the trap of not having their finances organised before they start the property search.
If you don’t have a pre-approval in place, you could find yourself in a very unenviable situation where you either miss out on a property or worse, can’t get financed approved after having submitted an offer.
Fortunately, getting your finance in place doesn’t have to be a long drawn out process and there are ways you can fast track your home loan application to not only make sure it’s approved but ensure it happens quickly.
Boost Your Deposit
When lenders are assessing your home loan application, they are actually assessing how much risk you present to them. To make sure your home loan application is approved, the best thing you can do is to make a strong case to a lender as to why you represent low risk.
One way you can do this is to put down more money. Generally, a lender likes to see that you’re able to put down a 20% deposit. This tells the lender that in the event that you are unable to meet the required repayments, or if the market falls, they are protected.
These days a 20% deposit is looked upon strongly by lenders, in an environment where many people are looking to borrow 90% or even more, thanks to record-high house prices in places like Melbourne.
Another way to reduce the risk to a lender is to borrow less than your maximum borrowing capacity would allow for. This has a similar effect in that it boosts your deposit as a percentage of the value of the property.
However, if you are in the market for a property and only have a small deposit, it is normally not worth waiting long periods of time to save an extra deposit. As house prices continue to rise, you will be losing ground, unless you are saving large sums of money quickly from something like a business.
Reduce Other Debts
When assessing your borrowing capacity, a lender will look at your income and also your ongoing expenses. While it’s possible to reduce some expenses such as eating out or subscriptions, it’s not always possible to reduce debts all that easily. As a result, a lender will look poorly on your application if you have a number of debts that require regular monthly repayments or at the very least, they will reduce your borrowing capacity.
As mentioned, this represents risk to the lender and that’s not something they like. Especially if those debts are unsecured, such as credit card debt.
Fortunately, if you’re looking to take out a home loan, it might be possible to consolidate some of these debts when taking out a new loan. That means rolling those other debts, into your home loan or even taking out a different type of loan, like a personal loan, that comes with a lower interest rate attached to it.
This might reduce your overall borrowing capacity, but it will make your application far more attractive to a lender. The best person to talk to about this is always your mortgage broker in Melbourne as they will assess your personal situation and advise you as to what to do with your current debts.
Check Your Credit Record
The first thing most lenders will do is check your credit record and credit score and oftentimes, borrowers can be rejected before they even get started.
A credit report is basically a record of how you have managed your debts in the past. If you’ve has some debts but have always paid them back on time and you also manage your monthly bills well, this will help your credit score and a lender will like this.
On the other hand, if you’ve struggled to pay back some debts, or even worse defaulted, then this might be a red flag for a lender. It’s important to understand what your credit record looks like before applying for a home loan and there are some situations where your credit record can be improved. Cleaning this up with help dramatically with your loan application.
Are you currently in the market for a new property? Get a clear understanding of how much that property might be worth with our free property report.