5 Ways To Increase Your Chance Of Getting A Home Loan Approval

In order to get approved for a home loan, one needs to do one thing only: convince the lender that he/she has the ability to repay the loan. However, the only difficulty here seems to be that lenders are not so easily convinced! Different mortgage lenders and banks have different sets of criteria, ranging from the applicant’s age, income, profession to his/her credit rating and credit history. We must also mention that requirements for home mortgages have become stricter over the years.

However, there is no need to press the panic button at this point. As long as you get your act together and do the right things, achieving a home loan approval should not be difficult. Read carefully and follow the tips below as well as you can and this will not only dramatically improve your chances of getting a home loan approval but will also help you secure an easier interest rate on your mortgage. In addition, or as an alternative, you may also seek the services of a reputed home loan advisor service before submitting a mortgage application. For our Australian audience, we recommend My Home Loan Rates, a home loan advisory with excellent track record. In addition to advisory services, the company also offers online tools that one can use to compare mortgage and interest rates from different lenders and calculate one’s repayments over the life of a loan.

5 Ways to Boost Your Chances of Securing a Mortgage Approval

1. Present a Clean and Stable Financial Track Record

This will help you convince the lender that you have the ability to repay the loan which, as already mentioned, is the ultimate factor when it comes to determining the strength of a home loan application. First thing, once you file an application, make sure to disclose everything regarding your current and potential future financial health. So, we’re talking savings, investments, sources of income as well as your current debts and other financial obligations. On the basis of this information, the lenders will assess how monthly mortgage repayments will impact your financial dynamics.

We strongly recommend that you first take stock of your outstanding debts before submitting a mortgage application. Try to settle as many of them as possible before you begin with the application process. One important metric lenders use when assessing home loan applications is the debt-to-income ratio of the applicant. A lower ratio will understandably boost your chances of getting approved for the loan.

So, make sure to stay up-to-date with things like car loan dues, credit card bills, and other debt obligations. Also, avoid taking large (or even small) loans months before applying for the mortgage. As we’ll discuss soon, it is necessary to plan ahead once you’re in the mind to apply for a home loan.

2. Get Your Credit Ratings Up

Of course, once you follow the recommendations made above, that will help you with your credit score and credit history—the first thing the lenders will check when assessing your home loan application. Credit scores traditionally start at around 300. However, according to home loan experts, one needs a minimum score of about 650-750 (depending on the lender) to get approved for a home loan. However, you should obviously aim at a higher credit score so to boost up your chances. Also, don’t forget that a high credit score will also pave way to lower interest rates.

Another thing to pay note to is your Credit History. Get a copy of your credit history (you can request the same from national credit reporting bodies such as Experian and Equifax) and see that no defaults or negative repayments are recorded. Sometimes, reporting errors made by companies may mean that you are tagged with issues when there really is none.

Also, it is important to check the history some time before you are planning to submit your mortgage application. This way, you’ll have the time to report the errors and get them sorted in time. However, make sure to not make too many credit enquiries since this may arouse the suspicions of the lenders. We recommend that applicants make two credit enquiries—once about three months before applying for the loan and finally immediately before submitting the application.

3. Have Enough Savings

This is, of course, important for the down payment you will need to make towards buying your property. Most lenders will expect your loan-to-value ratio to be between 75-80%, meaning you’ll need to cover 20-25% of your chosen property value out of the pocket.

Although rare, a handful of lenders may finance as much as 90-95% of the property value. In such cases, however, you’ll require to pay a one-off premium in the form of LMI (Lenders’ Mortgage Insurance) in order to partly offset the risk, the lender is taking.

This again shows the importance of planning months (or even years) ahead of making a mortgage application. Additionally, once you can show a healthy savings history to your lender, this will again hugely improve your chances of obtaining a mortgage approval as well as a lower interest rate.

4.  Avoid Career Shifts Before Application

Lenders pay great emphasis on the factor of employment stability of the applicant. Commonly, lending institutions prefer borrowers with full-time, stable jobs and your chances of getting approved for the loan will usually become higher the longer you’ve been with your current company. So, if you’re considering a career change, you may need to put that in hold for some time before making the loan application.

The above, however, does not mean that people who are self-employed, or individual contractors, or casual employees/part-timers, etc. do not stand a chance of finding a home loan.  There are lenders out there that offer home loan products with minimal employment requirements (often referred to as low-doc loans). However, as one can expect, the lenders issue higher interest rates and restrictive repayment options for this type of mortgage products.

5.  Stick to One Mortgage Application at a Time

This is one important factor which is however often neglected by applicants. Once you submit multiple loan applications to different mortgage lenders at the same time, this gets recorded in your credit report and will be interpreted as a red flag by the lenders. Accordingly, your best chance of getting approved for a home loan is when you apply for one loan at a time.

So, first take your time to do the necessary research and compare home loan products offered by different mortgage lenders. And on the basis of that research, determine where to apply and what kind of lending product will best suit your current requirements.