You’re hoping to enter the property market for the first time, or upgrade your existing place. Here’s how to ensure the bank approves your loan.
Identification and paperwork
Make sure you have all your paperwork in order before you start the hunt for a home loan. Banks will need your identity document, a proof of your current address and three months’ bank statements, your most recent payslips, tax returns and proof of any other assets, including savings, and debts. The bank needs to determine whether you will be able to repay the home loan and whether you are a good financial risk. Your credit record will therefore play an important role in the decision to lend you money. Factors that can influence your record include the length of time you’ve stayed at your current address, how long you’ve worked for your current employer, whether you pay your bills on time, and the amount of debt outstanding.
Clean up the credit report
Some experts advise that you start working on your paperwork, particularly your credit record, six months before you start applying for loans. Get a copy of your credit record and ensure it is accurate – details such previous addresses and jobs should be correct. Start paying off other loans and accounts, particularly credit cards.
Know what you can afford
Work out how much you can realistically afford to pay back monthly, and keep additional costs such as rates and taxes, and normal wear-and-tear expenses in mind. Many banks offer mortgage calculators that show you how much you can qualify for on your current salary. There is no point to look at houses that you can’t afford, as banks are unlikely to give you a loan.
Have a deposit
The larger your deposit, the better your chances of getting your home loan approved. You need a deposit of at least 10%, but 20% to 25% is more likely to guarantee success. If a family member is going to lend or give you money for a deposit, make sure it is in your account by the time you apply for the loan. Also keep in mind additional charges, such as transfer fees and loan origination fees.
Pre-approval for first-time buyers
Getting pre-qualified or pre-approval before a home loan application is critical for first-time home buyers. This will allow you to start shopping around for houses in the right price brackets, while sellers can take your offers seriously because they know you will be able to get funding. Visit your bank and see what you need to get pre-approved.
READ MORE: All about home loan calculators
Before you sign…
Your loan has been approved and you’re over the moon. Before you sign, make sure you know exactly what you’re signing up for.
· Ask the agent which home loan will be best for you – should you fix your rate, for example?
· What are the interest rates on your loan? Ideally, you want a rate below prime – shop around for the best offer.
· What are all the costs? This include the origination fees, and other fees such as the appraisal, credit report and property inspection.
· Is there a prepayment penalty? What happens if you pay off the loan before the stipulated time period, say 10, 15 or 20 years, is over?
· What are the costs involved when the bond is paid off and the account has to be closed?
How to apply for a home loan
- Make sure all your financial and personal paperwork is ready and available
- Ensure your credit record is in good standing
- Figure out what you can afford as a monthly repayment
- Have a deposit of at least 10%
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