Purchasing your own home can be a rewarding experience, however, if you’re not prepared for the ins and outs of the loan approval process, it can also turn from a homeowner’s dream to a mortgage nightmare. In the Life Change Index Scale conducted by Dartmouth University, moving to a new house and taking out a mortgage (over $20,000) are considered major life stressors.
Adding to the stress is the increasingly difficult mortgage approval process facing many in Australia. In fact, the Australian Prudential Regulation Authority, or APRA reported that the value of home loan fell 12 percent in the final quarter of last year. But it’s not all bad news. In May, Bloomberg News reported that the central bank regulator eased lending restrictions and will allow more potential homeowners to obtain better loans at lower interest rates.
Because of the easing of loan restrictions, if you’re a potential home buyer, you might be wondering how to apply for a home loan. If you’re willing to do your homework and follow some simple strategies, you’ll be prepared for the process, and your mortgage approval might be easier than you thought. It’s better to prepare a roadmap for home ownership than to discover unfortunate surprises along the way. So, what are some of the criteria that you’ll need to know prior to plunging into the mortgage approval process?
Of course, the first gauge that a mortgage company will use in the mortgage approval process is your financial situation. So when you’re starting the process of how to get approved for a mortgage, the better your finances, the easier it will be to be approved. Lenders will gauge the type of borrower you are and your ability to repay your loan on your financial history, including your overall spending habits, credit history, and job stability. If these areas are weak, then prior to applying for a loan, take some time to strengthen your financial position. Some of the ways that you can improve your chances to be approved for a mortgage are:
- Pay down your debt. By paying off credit cards, loans, and outstanding debt, you’ll prove to the lender that you have the income needed to make your monthly payments. An added benefit of paying off your debt is that it will automatically improve your credit score (another huge factor in determining if you’ll be approved for a loan.)
- Reduce your expenses. Often, an easy way to save money for a down payment is to cut back on your monthly expenses. Make a list of all your expenses and determine what areas could be eliminated or reduced, thus saving money. Each little bit you can save will improve your chances for a mortgage approval or even a better interest rate.
Another important criterion that mortgage companies take into consideration is your work history, including whether you’re self-employed. Of course, the longer you’ve been working for the same company, the more stable you’ll appear when you apply for a loan.
Your lender will also want to know how much you’ll be putting down on your new home purchase. Depending on your credit and employment history, they could require a low down payment. Be aware, though, that the lower your down payment, the higher the interest you might be charged.
Prior to applying for a loan, make sure that all your paperwork is in order. This includes all your documentation which may entail tax returns, employment information, and any additional documents required by the lender.