8 steps first-time home buyers can successfully get the home loan
There is nothing more valuable than proper planning and organising when preparing to buy your first home. The financial commitment can be a daunting thought, but with the right preparation and research, it’s very manageable and rewarding. Becoming a homeowner is perhaps one the most important life investments for someone to make.
These 8 steps can help potential home buyers, particularly first-time home buyers financially prepare as they start the process of becoming a homeowner. These steps will help you become aware and confident of your financial situation and avoid any surprises when you apply for a home loan.
1. Check your credit report
Get your credit report and know your credit history. Usually, it is provided free. It is the first thing a bank will look at when determining whether to grant you a home loan. Double-check the report for mistakes or inaccuracies, if there is any, check with the credit report provider (i.e. Veda Credit Report or the company reporting the action). A lower credit score does not necessarily mean that you are ineligible to get a home loan, however, you might not get the best deal in terms of interest rate or flexibility. If you find that your score is lower than it should be, take some time to improve it so that, by the time you are looking to buy a house, it’s at the appropriate level.
2. Pay the bills on time
One of the most important aspects of your home buying process is your credit history. Late payments are damaging to your ability to take out a home loan. Make sure that you are on track with your credit cards, utilities, and personal loan repayments. Set up a schedule and budget in order to pay bills as soon as they are due.
3. Save the deposit for property
Save the deposit amount with a well-documented history (i.e. bank statement) over a period of at least six months or more. The more you can save, meaning 20 percent or more will give you more buying power and you can save on additional lenders mortgage insurance (LMI) fees.
4. Stay consistent with job and place
Lenders prefer your current job or your previous job duration to be at least two years. Same goes for your living arrangement. Sometimes we can’t control what happens to us in our career or where we need to move, but if possible, stay consistent in your job and your address. Banks will take note of the level of commitment from this, and look for stability during home loan approval.
5. Know the entire cost of your home ownership
Do your research and make sure to keep property taxes, homeowners insurance, utilities, maintenance, fees, and repairs in mind. These costs can add up quickly. Also, be sure to check on interest rates and leave breathing room in you plan in case the rate rises in future.
6. Keep your debts low
Your debt-to-income ratio is also very crucial next to your credit score for loan approval. The more debt you take on after you have applied for the home loan, you could reach the maximum acceptable debt-to-income ratio which will jeopardise your ability to get the home loan.
7. Keep your finances steady
Your home loan application got pre-approved and lenders have checked your most recent bank statements, but they check the bank statements again during final settlement of the home loan. Lenders will wonder if they find unusual deposits or withdrawals and you might need to provide them with the proper explanation and documentation of a paper trail.
8. Be aware of the home buying process
Buying a home is a long and complicated process. Don’t misjudge the significance of each step involved (i.e. valuation of the property, conveyancing, or any first home buyer grant involved) that’s necessary to own your first home. Take it slow, and understand that it takes time to successfully own your first home and enjoy the experience and rewards that come with it.
After waiting, and hoping, the seller has accepted your offer, your home loan has been approved, and the home is yours. The feeling of purchasing your first home is truly fulfilling. Make sure that you’re financially secure enough to tackle the investment and enjoy the rewards.
Owning your first home is a process, and it’s a long one, just be sure to be ready for it.
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