Have you started to look for a property but unsure of how to get the best home loan? Discover the top five tips to secure your next home loan and avoid the pitfalls that turn the banks away.
1. Build a strong credit score
A strong credit score is highly sought after by banks that can fast-track your way to securing a home loan. A credit score essentially tells a bank how trustworthy you are. Moreover, whether you would be able to meet loan repayments if you were successful in securing the loan. Poor money management not paying bills on time would indicate to lenders that you are untrustworthy when dealing with money. Regardless of unforeseen circumstances missing payments would negatively impact your capacity to borrow funds in the future. To avoid this scenario, first, consider building up a financial buffer. These funds would be there to lean on in times of need to ensure you don’t miss a repayment.
Credit card churning to maximise bonus points (one of my favourite past times) is also an area to avoid. Credit inquiries on your credit report are one of the first checks by banks when reviewing a home loan application. Whilst not detrimental (and can be easily avoided) it can lower your score and is seen as unfavorable by lenders. Saving money particularly in these times can be hard. Therefore early intervention is better than kicking the can down the road as debts have a tendency to snowball if left unchecked.
2. Seek out independent financial advice
Seeking out independent financial advice is something that I cannot stress the importance of enough! Finding a great mortgage broker or financial advisor can help to get your finances in check. Early intervention is crucial to ensure you are in the best position possible when securing finance with a bank. Real estate agents tell numerous tales to hook buyers into a deal. However, without the right financial backing, the house of your dreams may slip out of your grasp if you cannot secure a home loan. Do you need to know what your current property is worth? See the property experts at Upside for your no obligation free property appraisal. Make sure that you use the knowledge of the local market from the experts so that you can make your own well informed decision.
3. Maintain steady employment
A change in employment situation may restrict your ability to borrow as the bank views casual and part-time employment as inferior to full-time employment. Leaving a full-time job prior to commencing the investment property search can create a setback. This change in employment would have a negative impact on your capacity to borrow and service a loan. Switching jobs or industries can also limit your chances of securing the best home loan rate. Banks prefer to see a secure and steady income from the same employer to reduce their risk that you may default on the loan.
4. Avoid Buy Now Pay Later (BNPL) offerings
Probably one of the worst finance choices would be to enter into a Buy Now Pay Later (BNPL) arrangement. The new watch, phone, or runners at low or no interest repayments may seem like a great accessory item at the time. However, it could create a hurdle impacting your prospect for a bank loan. A black mark on your credit report can result in lenders charging you a higher interest rate. Furthermore, without a solid income level or high expenditure, the bank may choose to knock you back altogether. A better approach would be to save the funds first and acquire the item that you would like to buy rather than put it all on credit terms.
5. Budget household expenditure
Some expenses are a necessity of life; food, water, electricity, rates, taxes, and rent. However, some discretionary spending on entertainment, dining out, expensive gift, and lavish holidays can be cut down. Prioritising spending ensures you are given the best opportunity to secure a home loan with a lender. Banks will scrutinise your spending habits, particularly in the short term. They want to identify the credit risk to them lending you a large sum of funds. If your expenses are lower than expected the banks may apply their own benchmark rates and add this onto your capacity to service the loan. Therefore cutting back to bare essentials is also not going to be the single deciding factor that secures you the loan.
In summary
A measured approach over time that prepares you for all facets of property investment and limits any unwanted surprises. A strong financial position will ensure that you secure the best home loan rate and are on your way to climbing the property ladder. If you are still unsure on whether you want to invest your hard-earned savings into an investment property or the share market consider read my blog on shares vs property. This blog outlines a comparison of the benefits and drawbacks of both investment options. Do your own research when considering financial decisions that will impact your future.
