Applying for a home loan? Check out this 6-step checklist.
Many buyers are so excited at the prospect of owning their first or new home, they can only think of the result when applying for a home loan: ownership and moving in! But way before the big day, there are some things to consider such as the entire contract you are about to sign and everything in it. Most importantly is the financing – which often translates into getting a home loan – and if you take the right preparatory steps and you can be sure of a successful outcome. So we are here to shed some light on the subject.
1. Consider the reputation of who you are borrowing money from
With so many home loan options available, it may be difficult to determine the one that’s right for you. A primary rule is to only apply for a loan from one of the big banks and although they might charge you a slightly higher interest rate, you will be safer with them as they will offer more security, service, and backup.
2. Borrow wisely
Do not borrow more than you need, as this is very tempting because extra cash is always welcome when you have just bought a new home. The most important thing to keep in mind is to be truthful about your income or expenses, to yourself and the bank! Be realistic about what you can afford to repay and opt for a fixed interest rate – at least for a limited period. This way you will know what you are going in for. Wise buyers also avoid interest-only payment options as this won’t make you any money in the form of equity on your new home. As many excited buyers get swept away in the excitement of the purchase, in this regard we can also say avoid making emotional or impulsive decisions as getting a loan is not about the maximum you can borrow, it’s about the maximum you can afford to pay back each month.
3. Maintain an impeccable credit history
Your credit history is key. Lenders almost always check your credit score when you apply for a mortgage loan. You don’t want to be unpleasantly surprised by what they find out. Take proof of your credit repayments with you when applying for a home loan. It will lend credibility to your commitment in paying back a pending home loan and show that you are living within your means and are conscientious.
4. Get prequalified for your loan
You’ve probably heard of the importance of getting preapproved for a loan before you start shopping for your new home. This means sitting down with a home loan manager who would give you an estimate of how much money you can borrow. This will help you set your sight only on properties that you can afford – avoiding unnecessary disappointment (and waste of time) of falling in love with a property that you then cannot afford. This will show the bank that you are serious and will also more likely result in you knowing that you have a good chance getting the loan before the official application process for the home loan kicks off.
5. Be Wary of Employment Changes
A stable employment history is important when preparing to buy a home. After all, you have to show that you have the stability and continuity of income to repay the loan.Requirements may vary based on the type of employment you have, and at times a loan will only be granted if you have retained a stable job for a specific period. Based on your situation, you may be asked to provide additional work history and income information. There are a variety of income situations, and your lender will be able to share with you what is and is not an acceptable form of income.
6. Pay attention to the loan term
Loan terms are often tied to your retirement age, but other options exist as well. On one hand, a shorter loan of 15 or 20 years will allow you to pay off your loan faster and save money on interest charges. But be wary that will also mean higher monthly payments, kerbing some of your cash flow. On the other hand, you could extend the loan term out to 30 years or till retirement age which would make your monthly payment much more affordable and even allow you to borrow more. But by increasing the duration of the loan also means increasing the amount of interest paid over time. Today you can also look into government-backed home loans which some banks, such as APS, are offering, as well as ‘government sponsored’ loan incentives.
Remember that getting approved by a bank for a home loan stands for more than just that: it says that you are responsible, financially mature and know how to work with money. This will stand you good for years to come and you will benefit from this credit-worthy status in the future, as long as you keep up your end of the bargain. Our last word is to pay of more than the monthly minimum required amount of the loan, as this will not only pay off the loan sooner, it will in fact MAKE you money in the long run and show up on your credit record when applying for future loans.
Want our help with getting a home loan? Get in touch with any of our branches, or drop us an email, and we will see what we can do.