5 Things to Know Before Applying for a Home Loan
Applying for a home loan is the first step in taking on a huge financial responsibility. You want to make sure that everything will go as planned. If you’re a first-timer, this can be a challenging process especially if you didn’t do your research.
Preparation is the key to ensure that from the moment you apply for a mortgage, the application process will go smoothly as possible. Here are the top five things you need to know before applying for a home loan:
#1 Do you know your credit score?
When you apply for a home loan, your lender will consider your credit score to assess whether you are a good borrower. Late and unpaid bills will contribute to a bad credit score which can lower your chances of securing a home loan with a low interest rate. But if you have a good credit score, your lender will view you as someone who can reliably commit to meeting their financial obligations. This means you may get approved on your home loan application.
Get to know how healthy your credit score is by obtaining a free credit report from Equifax Australia, Dun & Bradstreet, and Experian. If you find that you have a low credit score, there is still a chance to increase it. Some ways you can do that are to pay your loans and bills off on time, and minimise loan or credit enquiries.
#2 Do you know how much you can afford to borrow?
Know your borrowing capacity first before going house shopping. Your borrowing capacity will be based on your income, expenses, financial commitments, and your personal profile such as your number of dependants and the type of house you’re buying whether it’s an owner-occupier or an investment property.
To know your maximum borrowing capacity, there are online calculators available but take note results are only rough estimate. It is still best to speak with lending specialists such as mortgage brokers.
#3 Do you qualify for a First Home Owner Grant?
The First Home Owner Grant is a national scheme designed to help first home buyers acquire their first home. To qualify for this grant you must:
* Be an Australian citizen or permanent resident
* Have never owned a property in Australia
* Be over 18 years of age
* Have lived in Australia for at least six months
* Neither you or your spouse can have claimed the grant previously
* The home you are purchasing must be located in Australia and be a new or established house, unit, flat or other type of self-contained fixed dwelling that lawfully can be used as a place of residence
* Intend to live in the home as your principal place of residence for at least 12 continuous months, starting within 12 months of settlement or completion of construction
Before applying for a home loan, make sure to know if you qualify for this grant. You may visit your local government website for more information.
#4 Do you have enough money for a deposit?
Most lenders require at least 10% of the home purchase price as a deposit. However, if your deposit is only this size you will need to pay for Lender’s Mortgage Insurance which can add thousands to the cost of the loan. To avoid this, you need to put down a minimum of 20% deposit. This can help to lower your interest rate and your mortgage repayments.
Set up a monthly household budget, cut down your expenses, and get on top of your debts so you can start saving for a deposit for your house.
#5 Do you know the other expenses when buying a house?
Your mortgage repayments are not the only responsibility you have when you apply for a home loan. There will be other upfront fees and ongoing fees involved such as stamp duty, establishment fee, settlement fee, building and pest inspection report, solicitor fees, insurance and more. Mortgage fees will depend on your lender, so it’s best to ask what kind of fees you will need to pay so you can factor these into your budget.
These are just some of the things to take note of before you apply for a home loan. Make sure to do your homework so you can make an informed decision when you decide to take out a mortgage.
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