Shopping for a first home can be an incredibly exciting experience. Before you head out to start looking at your options, however, it’s important to get your funding squared away. With a bona fide, pre-approval letter in hand, you’ll be able to submit offers on properties that carry real weight. Following are a few, essential tips for streamlining the loan application process and for ensuring that you get the financial assistance you need to bring this transaction to a close.
1. Check your credit score before lenders do.
Buyers should never assume that they know everything there is to know about their credit histories. Before submitting any loan applications, make sure to take a good look at your credit report. Credit reports in Australia are usually managed by Veda. You can visit their website to obtain a copy of your report. You may find that there are reporting errors or other problems that you can easily correct by working with the respective reporting agencies. This will also give you the chance to learn more about your profile and to determine which funding products you’re most likely to qualify for. By sharing your numbers and concerns with your broker at this stage, you can also gain tips and advice for clearing old issues up ahead of the application process.
2. Understand to your debt to income ratio and the importance of minimizing it.
It is not enough for buyers to have good credit scores. In fact, you can have an excellent credit score and a formidable amount of income and still have your application denied. Lenders also consider your debt to income ratio or the amount that you earn each month in relation to the amount that you have to pay out. They want to make sure that you have enough disposable income for covering all of your ownership expenses. Thus, it can definitely be to your advantage to pay down a few of your credit accounts so that you have more money to save and less that you’re required to spend on bills that aren’t directly related to your new home.
3. Spend some time learning industry jargon so that you can make informed choices on your own.
There are many different professionals that you’ll need to have on your real estate purchasing team including a reputable broker, real estate agent, property inspector and more. The best of these individuals will take the time to carefully and clearly explain the different things that they will be working to accomplish on your behalf. Nonetheless, it is still important to get educated about the buying process on your own. No one knows your purchasing goals better than you and no one will be better capable of representing these goals than you. The better able you are to define the purchasing terms you want, the more effectively all of your providers can assist you.
Don’t know the difference between a standard variable mortgage and a 3-year interest only loan? Probably time to get learning.
4. Avoid making any major purchases after your pre-approval letter has been received.
Never assume that a pre-approval letter is evidence of guaranteed funding. This simply means that the bank has reviewed all of your financial profile and determined the amount of money that it is willing to extend based upon its findings. No funding offer is set in stone until your application is actually in the hands of the loan underwriter for finalization. A lot of buyers make the mistake of investing in big ticket items as soon as their loan applications are pre-approved and their offers have been accepted. They might purchase new cars to park in their new garages or seek financing for a home full of furniture. These purchases change their debt to income ratios, which can in turn impact the amount of money that they’re approved to borrow. If additional research performed by your loan underwriter reveals any significant changes in your earnings, debts or credit history, the loan offer can be taken right back off the table and you’ll be right back to square one. It is far better to hold off on any financed purchases until after you’ve already moved into your new home and have a firm handle on your new ownership expenses.
5. Account for all of your ownership costs when setting your spending budget.
You also want to have a comprehensive understanding of what your new living costs will be once you take possession of your property. The transition from tenant to property owner is a major one. You’ll be responsible for paying full utilities, property taxes, homeowner’s insurance, homeowners’ association dues and ongoing maintenance and repair costs among many other things. Knowing how much these things will set you back is essential for determining how much home you can actually afford and for establishing a plan that will allow for continued success as a homeowner over the long-term.
If you have any questions, feel free to contact Mortgage Hero and let one of our expert brokers assist.