There are many factors that you can take into consideration when you are planning on taking out a loan to buy your dream home.
In this article we take a look at the most important factors and offer you simple and practical advice for those looking to apply for their first home loan.
What do you need to consider when applying for a home loan?
Your credit score will determine whether you will be approved and the interest rate you will receive while how much you will be approved for will be based on your income and the income of your spouse.
Your credit score is a determining factor
If you would like to know if you can apply for a home loan then you should check your credit score. If your credit score is over 660, you have a really good credit score and you should not have a problem applying for your home loan or getting approved.
If you have a poor credit score, you should apply for a copy of your credit report and find out why. You can then address these issues and work towards improving your credit score and improving your overall financial situation.
Things to think about before applying for a mortgage
- Saving for a deposit is something you need to consider months or even years before purchasing a property. Set up a savings account that will be used to add a set amount towards your goal every payday. This goal can be anything from 10% to 40% of your intended purchase budget. The higher your deposit, the lower your monthly repayment will be and the less your home loan will cost in interest overall.
- Remember to also factor in the property transfer and mortgage origination costs which you will be liable for.
- If you or your spouse has a bad credit rating, you should work on improving this. This can be done by keeping up with all debt and bill payments, avoiding unnecessary debt and avoiding closing multiple accounts within a short space of time.
- In addition to your monthly mortgage payment that you will have to make you should also take into account additional expenses that home ownership will bring. These include additional bills and maintenance costs to name but a few.
- The type of loan that will suit you best is an important thing to consider since it will make a big difference to your finances over the long term.
Your income will determine your loan amount
When you apply for a loan, you will need to ensure that you have a steady income that the bank will be able to verify. Whether your steady income is as a result of a salary or income from your business or freelance activities, you must prove these earnings in your account.
Those that are self employed or own a business must have their tax affairs in order prior to making a home loan application. If you have any outstanding tax submissions you will not be approved for a loan and will have to sort this out before making another attempt.
Down payments on mortgages
If you do not have the best credit score lenders can still give you a loan provided that your spouse has a good credit rating or that you have a large down payment.
The down payment most companies look at is between 5 to 20 percent of your loan amount. Some people even put down a higher deposit than this to reduce the overall cost of their loan.
Types of mortgages
If your credit score is high then you might be lucky enough to get a personal loan with very low-interest rates and the same applies when you take out a mortgage.
With a fixed rate mortgage you will always know the repayment amount due, regardless of what the market is doing. With a flexible interest rate mortgage the amount you pay every month depends on what the market is doing.
Get insurance on your property finance
When you apply online you will be able to find out whether they will offer you the insurance you need or if you can apply for your own separate insurance. Generally speaking almost all mortgage providers require that you take out their in-house mortgage insurance.
Applying online or in a branch
If you would like to apply online for any loan, all you have to do is first find the company for you. This can be done by comparing home loans on a loan comparison site.
You can also make use of a home loan broker to help you find the best loan for you or simply request pre-approval so that you know how much your qualify for and which price range to shop in.
Then you will find the loan that is ideal for you and then once you have done that you will click on apply and follow all the steps to complete the application.
Get faster home loan approval with these expert tips
It is always best to prepare your application and verify your finances prior to applying as this will help with getting approved quickly and also getting a great interest rate. If the required documentation isn't available your application will be delayed.
You will get communication via email or SMS or phone call letting you know that these documents are outstanding. If you would like to find a branch simply check online and you will find the closest one to you. Now you are ready to apply for your home loan and ensure that you get the best mortgage terms and interest rates.
Preparation is key to success
When it comes to property finance, preparation is key to success. From preparing a down payment to preparing your credit rating and researching the types of loans and lenders, the more you prepare the better the outcome is likely to be.
Another important consideration is whether or not to make use of the services of a mortgage broker. Generally speaking it is best to do so as these professionals will be able to provide comprehensive financial advice and gather quotes from all major providers after helping you complete a single loan application. They will then help you compare all the quotes and choose the best option for you.