The process of getting a home loan approved can appear to be daunting for many people. It’s important for borrowers to understand what’s involved so they can avoid getting knocked back by lenders.
Low doc loans are a relatively new development that attempts to simplify the application process, but the factors that influence approvals are still largely the same. For this reason it’s always remains important for borrowers to do their absolute best to secure the outcome they want.
The following will discuss some of the most useful tips to help borrowers secure the approval they want so they can focus on the fun parts of moving into a new home.
Outline the budget
Deciding on a limit is always important in any transaction and this is no different for home loans. It’s crucial to be realistic about what level of repayments can be afforded. A small buffer of 5-10% will help make sure that borrowers don’t end up with a stressful level of repayments they have to scrape by to afford.
It’s also important to determine the extent of any upfront costs and factor that into the calculation as well.
Creating a realistic budget is not just important for repayments, but for the approval itself. Sticking to a good budget that produces steady savings for a minimum of 6 months prior to applying for approval will look good to lenders. It demonstrates an ability to save money and be responsible with it.
Demonstrate a stable environment
Lenders love to see if someone is in a stable living arrangement before approving a loan. This means having a reliable source of income, usually a job, and an uneventful rental history. Jumping between different jobs will look bad to lenders as it does not represent job security and an ability to make reliable repayments.
People who are self-employed or have different arrangements for their sources of income will find themselves favouring low doc loans for scrutinising their job history less harshly.
Make note of credit status
As can be expected, an individual’s credit history will play a huge part in their approvability. Borrowers should educate themselves on what their credit file details about them.
Things like outstanding debts or late repayments will affect the borrower’s overall credit score. This score is what the lender primarily uses to determine approvability and thus it’s crucial to keep it in good standing.
Demonstrate financial conservatism
It’s important for borrowers to show lenders that they can settle with less and will not go into debt for unnecessary things. Reducing the limits on credit cards is a good way to demonstrate this.
Every S100 of credit card limit reduces the capacity for borrowing by up to $500. This makes it best practise to avoid having credit cards whatsoever. The less overall debt a borrower has or is prepared to have will increase their chances of approval.
Make sure bank statements look good
According to Real PDL Help, during the 6 months leading up to application, borrowers will want to make sure their bank accounts show a positive image to lenders. Late payments or overdrawn accounts will look very bad to lenders.
The majority of lenders will want to see a minimum of 3 to 6 months past bank statements so they will need to be properly organised. Self-employed individuals who may opt for low doc loans will need to make sure all of their tax documentation is up to date, making sure they own nothing pre-application.
Applying for a home loan is really a simply art of the borrower portraying themselves as responsible people who can generate money and pay their debts on time. Lenders may seem scary but in reality they are just trying to ensure they do not lend money to who they perceive are unreliable people.