Owning your own property, and one day paying off a home loan, is a sound investment in something that belongs to you, rather than paying it out to a landlord every month for a property you will never own. A mortgage broker in Melbourne can assist with sorting the right loan for you but how can you improve your chances of being approved for a loan? Let us look at the top 5 tips.
Be realistic about repayments
What a mortgage broker is going to want to see is that you have got a good handle on your finances. Make sure you have set out a budget that shows your income and all outgoings and review your cash flow. Think about any changes in the next few years that could affect this, for example, are you planning to have a family? Are you looking to retire early? These events will cause a drop in your income. Then when you know what is left after payment of bills, entertainment, other loans and so on, this is the amount you can spend on repaying a home loan. Use a mortgage calculator to put in the repayment amount, add an interest rate of around 7% and it will show the size of mortgage you can afford.
Check out your credit rating
Details of your credit history is one of the first things a mortgage broker will review to see if you are going to be a borrower who pays off their loans. Your credit rating also determines whether you are able to qualify for a loan in the first place and if you do, at what rate. Do this at least 6 months before you begin to look for a mortgage broker in Melbourne as this gives you time to check and make sure there are no mistakes or errors in this rating.
Then, ensure there are no accuracies in this report as this will affect the overall rating. Look out for the following:
- Debts already paid off but not showing as this
- Out of date information
- Information not about you –mistakes due to similarities in names/addresses/social security numbers etc
- Information about ex-spouse/partners that should not be there any more
- Information not yours – check for identity theft
- Incorrect data on closed accounts, e.g. showing creditors closed the account but in fact you did
Improve your credit rating
Usually, the higher your credit score the better the mortgage rate you can achieve, so once you have your report, checked it for any mistakes, you can then start to pay off any current debt. By ensuring you pay your bills on time by using payment reminders, cutting back on the use of credit cards so you keep any revolving credit balances low and reducing the debt, you can then recheck the impact this has on your credit rating. Having this under control and able to demonstrate to a mortgage lender the controls in place on your finances will also go a long way to showing you as a potential borrower.
Reduce your debt-to income ratio
A lender also reviews the debt to income ratio – basically the amount of your debt compared to your income. This is worked out by dividing the total recurring debt you have each month by your gross monthly income. It is expressed as a percentage and lenders review this to check your ability to manage monthly repayments. If you have a low debt to income ratio (about 36% or lower) this will be of interest to a home loan lender. Anything above 43% and you will find it difficult to get a qualified home loan. To lower this figure, you need to take a good look at where your money goes each money and make a qualified effort to reduce it, as increased income and reduction in monthly recurring debt is the only way to lower the ratio.
Review the amount needed for a deposit and do your homework
The bigger the amount you can put down on a home loan as a deposit, the better it is but this is easier said than done. Review what else you can offer as security, but you do need to have some savings behind you. There are several different loans on the market and you also need to look at what is available that would suit your individual circumstance. Make sure you check out the different options and make an appointment to have a discussion with an experienced professional mortgage broker.
After you have all these tips in mind, get ready to submit your application knowing you have done your best to increase your chances of getting that all-important home loan.