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How to nail your home loan preapproval the first time

Everything you do before you apply for preapproval of your home loan matters.


Everything.



What you do before you actually apply, how you spend your money and how you manage all your financial commitments will directly determine how much you can borrow.


So before you fall in love with that property that ticks all your boxes, there are 5 key things you can do to ensure you put your best foot forward to qualify for your home loan.


Tip #1 - Find out your credit score

Do you know bank's score you? It's called your 'credit score' and you are given points depending upon your 'credit worthiness'.


Your credit score is determined by your repayment history (for all your financial commitments including phone bills, utilities, credit cards). It is also determined by the length and types of credit you have applied for, or currently hold, and whether you have applied for new accounts.


Credit scores range from 300 to 850. Credit scores from 580 - 670 are considered fair; from 670 to 740 good and from 740 to 800 considered very good. From 800 up, you've nailed it and you are considered to have excellent credit worthiness.


So know your credit score. The higher the better.


Tip #2 - How many credit cards and other debts you have matters

Did you know that your credit limit on your credit card reduces how much you can borrow? Even if you don't use your full limit or your rarely use your card, the bank will take your full credit card limit on each card you have to determine how much you can borrow. The higher your credit limits = the less you can borrow.


If you don't need a big credit card limit, reduce it. If you don't need your credit card at all, consider cancelling it before you apply.


The same goes for car leases or personal loans. The amount you are committed to spend each month on other debts reduces how much you have left to repay a home loan. Which then reduces how much you can borrow.


If you are thinking about taking out a new car lease or personal loan before applying for a home loan, WAIT.


"What you do right here, right now, matters"

Tip #3 - How much you spend each month can bite you

It's just so easy to spend these days. Tap and go could be considered the root of all evil. Gone are the days of single page bank statements. I have seen clients with 30 pages of teeny tiny transactions which add up.


You must provide - and often prove - your living expenses when you apply for a loan. All your expenses on a monthly basis. Banks will often want to see those statements.


So be careful. Consider curbing unnecessary expenses especially on things you don't really need. Become more aware of how you spend your money and how often you tap that card.



Tip #4 - Banks will look back 3 months

Everything that happens in the 3 months before you apply for a home loan matters. Not 1 month or 2 but 3 months.


Banks will often ask for 3 months of current statements to support the living expenses you declare on your application. They will want to know and see what has been going on in your life for the last 3 months.


So be on your best behaviour for 3 months before the date you apply.


Tip #5 - Don't change anything. Not a single thing.

Thinking about changing your job? Changing your hours? Starting a new role? Stop. A change in job can directly impact upon your chance at qualifying for a loan. Ideally, wait until you have applied for your home loan and purchased before you make any big decisions about your job.


Thinking about starting a family? Perhaps at some time In the future but not too distant future? Understand the impact this has on qualifying for a home loan. You have the biggest capacity to borrow when you have no dependents; less so when you have one or more dependents.


It's all about timing.


Bottom line. What you do today matters and will count to your ability to get the home loan that you want in the future. If you understand this and can put in the effort BEFORE you apply for a loan, you will be giving yourself the best chance to quality for the loan you want to buy that property.


Email me on the link below if you want me to crunch the numbers to see where you stand right now and what you have to do to get ready to apply.



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