Top tips before applying for a mortgage. Most people need some form of mortgage to purchase a property. In this market insight we outline some helpful tips to better your situation before apply for a loan.
It’s essential to obtain a loan pre-approval or gain clear understanding around your borrowing capacity. It will ensure you purchase a property within your affordability. It also helps narrow your property search as you know what you are looking for.
There are certain things to do before you apply for a mortgage and it’s often helpful to prepare your finances starting a few months in advance.
Here are some tips before applying for a mortgage:
1. Take control of your finances
Taking control of your financial circumstances will go a long way to understanding what you are capable of paying and what you can afford to buy. If you have some form of debt, such as credit cards, store purchase cards, personal loans etc, you want to make sure you have a good history of paying your loan on time. If you demonstrate a tendency of falling behind or paying late, this will create issues in obtaining a loan approval. Banks and financiers approach lending very cautiously so you want to demonstrate that you have control of your finances.
Lenders often use various calculators to ascertain your debt-to-income ratio. This basically works out what proportion of debt you have in relation to the income your earn. If you can prove your income will service your current and proposed new loan, the better your application will look.
Another good way to prepare yourself is to avoid making any new applications for credit in the six months before your home loan application. Additional debt can reduce your overall borrowing capacity.
2. Learn what type of mortgage suits you
There are many types of lenders and each offer a variety of different products. There are different types of mortgages to suit different people’s lending needs. It is important to learn what is available and what is best suited to your circumstances. Ideally meeting a mortgage broker would be best in this situation. They can assess your financial situation, learn what your borrowing capacity and identify the proposed loan repayments. Furthermore, they can obtain a loan pre-approval which will provide you with the confidence to purchase the property in advance.
Understanding interest rates (fixed vs variable), fees and loan terms are best explained from mortgage brokers. If you need assistance with sourcing a good mortgage broker, please don’t hesitate to contact us.
3. Organise your paperwork
Before applying for a mortgage you need to take some time in orgainsing your paperwork. You’ll require copies of your identification, information relating to your employment, proof of income and copies of your bank/loan statements to name a few. Having the support of your mortgage broker will ensure your paperwork is organised.
You should retain copies of all of your financial records. This will make things much easier when you’re ready to proceed.
4. Check your credit rating
A credit health check is part of applying for a mortgage. You can order a credit check report at anytime. This will allow you to confirm you have no bad credit. You can learn more about common habits of people with a good credit score in our market insights.
You may be earning a good income or have sufficient equity in another property, but a bad credit score can stop you from obtaining a home loan. With the help of a mortgage broker, they can also review the report and assist in fixing it or sourcing a lender who will still borrow you money. Please note, a bad credit score can limit or even eliminate your chance to getting a loan.
5. Close inactive credit accounts/store cards
Another helpful tip before applying for a mortgage is to consider closing any inactive credit accounts. Credit accounts are credit cards or store cards. You may have these as an emergency and owe nothing but a proposed lender looking at borrowing you money, will use the credit card limit as a loan balance even though its zero and/or inactive.
You should discuss this with your mortgage broker as you may not need to do this. In fact you may need to keep them if its for emergency purpose.
What should I do from here?
At Crest Property Investments we regularly work closely with trusted mortgage brokers. We believe you should use them when applying for a mortgage. They are experienced in understanding the types of loans and can ensure you choose the right product. What you can borrow or should borrow is also a very important assessment before buying a property. These tips have been put together as a guide and to take a great appreciation using mortgage brokers. If you’d like an introduction to someone near you, please don’t hesitate to contact us. We would be delighted to share our network with you.
Please be responsible when lending. The Australian Securities Investment Commission have further tips to taking careful steps when committing to loans and mortgages.
While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you want to learn more please contact us. We welcome the opportunity to assist you.
September 2021
