Buying your home is a wonderful time of your life. Especially if this is to be your first home. Everything about the process should contribute to the feeling of fulfilling your dream. However, there is one process, which if not well prepared, can frustrate and even disappoint you during this special time. This is the home loan approval process. You will be well advised to have a home loan broker handle this for you. This will certainly minimise any discomfort. If you have decided to handle the process alone – read on.
This article aims to help you understand the process and prepare you for what will be expected of you. With this knowledge, your first home loan approval process will go smoothly contributing to your dream coming true. Here are the steps to take prior to applying for a home loan:
Prepare Your Docs
The home loan approval is the process during which the lender of your choice will assess your creditworthiness. This means that the lender will ask for information and document proof for various criteria that they deem important for your ability to repay their loan. These will include, but are not limited to:
● Your ID
This is necessary to clearly define who is going to apply for the home loan. Certain checks from various sources will be done from your creditor-to-be based on your ID document;
● Your Age
For some lenders, the age of their applicant is extremely important as it outlines how long you will continue to be economically active.
● Your Employment Status
Where you work, how long you have worked there, what is your profession, are you self-employed – these are important questions for most lenders in order for them to determine the probability of your continued employment and respective income.
● Your Indebtedness
This will include all previous loans, credit card debt, car leasing liabilities that you carry at the time of application. The logic of the lenders is to make sure that you will not be over-indebted in the event of their home loan approval.
● Your Income
This, of course, is crucial information for any lender trying to determine your ability to repay the loan.
● Your Savings
This information may be required as a counter-weight to your indebtedness and the ability to earn more than you spend.
● Your Marital Status
Some lenders will be interested in your marital status and offspring, as these will have implications on your repayment ability.
Some people start off with finding the property of their dreams and then applying for a home loan to finance it. This is a wrong approach. Actually, it could turn out that you are not approved for the loan necessary. Of course, you will learn this after a tedious and long approval process.
The correct approach is to start with a pre-approval for a home loan. The pre-approval process is basically the same as the approval process, but without having any time restrictions and frustration. Pre-approval is done by most lenders and may even be made online. The result of the pre-approval will be conditional approval for a home loan. It is “conditional”, as you still have not found your property.
What the pre-approval will do for you is to provide you with a quote of how much the lender is prepared to approve you. This is powerful information. Armed with it, you can now go about looking for your property, knowing that you will be easily approved when you find it. Pre-approval is especially powerful if you plan to purchase your property from an auction. Having a pre-approval will make you knowledgeable on the limit of your auction bidding.
Manage Your Credit Rating
The pre-approval can give you valuable information on what is the credit limit for your future application. This, however, is not set in stone. You can actually work on your credit rating and improve it well in advance of your actual credit application. Just look at the above list of information that you will be asked for upon application. It is quite intuitive how you may beef up your credit rating and make the lenders eager to lend to you:
● Employment Status
Make sure that you have a sustainable sound work record. Changing employers often are not eyed well – it may be you changing them, but it may well be them changing you;
Your credit limit will be in direct proportion to your income. Try to increase it as much as possible prior to your credit application;
● Credit Performance
Your lender will inquire about your outstanding credit liabilities. But he will also look into your credit performance. Make sure that you have never missed a payment on your existing credits. If you have, check out ways to remedy this bad record before applying;
The lenders want to see how you can earn more than you spend. After all, this is what will be expected from you after receiving the home loan and starting its repayment. Make sure that you can show them your prudence.
Having worked on your credit record for some time, you can actually check your credit rating from a number of lenders. Here is an example of a credit scoring calculator. The better your credit rating the higher the chances for approval and the lower the interest rate you will be offered. So it really pays off to work on it.
The standard loan approval process will take between 4 and 6 weeks. This however is the period after you have supplied your chosen lender will all of the above documents, which he has requested. Hence if you take your time, the loan approval process may drag on for months. If you are well prepared, with all necessary documents ready to go, having a great credit score and a pre-approval made your final approval will be out before you know it.
Armed with the knowledge above, prepare, check your credit score, fix any issues and apply. Your credit approval will be fast and will just add to the positive emotions of buying your property.