5 Things to do before you Apply for a Home Loan
Considering applying for a home loan is a big decision. It will change your lifestyle so it is important to make sure your mortgage knowledge is up to date. It is vital that you use a mortgage calculator and a budget planner to work out the amount you wish to borrow and importantly, to see whether you can comfortably make the repayments. Here’s 5 tips to increase your chances of a stress-free borrowing experience;
Your credit score
The lending institution will be cautious and look closely at your credit score. When applying for a home loan, a good credit score is essential. Your credit score will give lenders an indication as to how likely you may be to default on your loan. It is crucial that you check your credit score to make sure it does not contain errors. Your credit score is a number generated by a complex computer program which collects data on every amount you have ever borrowed and repaid.
How much deposit do you need
The deposit required varies from bank to bank. Most banks will require a certain percentage of the amount being borrowed, for example, 20%. Make sure to take into account in the amount being borrowed that you have enough to cover costs such as stamp duty, legal fees and bank loan establishment fees.
Is this your first home loan
There are many Government benefits when applying for a home loan. Some of the benefits have restrictions on what type of home you can buy, whether it be a new home or an existing home. Research this on the Government website or your lending institution may be able to assist you with this information.
How much can you afford
Approach your lender with the amount you wish to borrow. Lenders, however, will make sure you do not borrow too much. Borrowing too much may make you repayments difficult. Lenders will also look at your income, your existing financial commitments and your ability to repay a home loan. There are mortgage calculators to assist you with working out a suitable home loan limit.
Choosing the right home loan
There are many types of home loans.. Make sure you get a facts sheet from your lender. Loans can range from interest only loans, principal and interest loans and low-doc loans. Your lender will take into account your current financial situation, your existing debt and your repayment ability when helping you to choose the right home loan.
Although many home loans are traditionally arranged through banks, you can also use the services of a mortgage broker who will act as a go-between with the bank or credit union on your behalf, but it is important to make sure the broker is licenced and that they do have access to the full range of options to best suit you. Brokers can also charge commission for arranging a loan, which is usually paid by the loan provider. Whichever lender you choose, always read the fine print and check the interest rates and fees.