5 Things To Know Before Applying For A Home Loan
Are you ready to apply for a home loan? Whether you are getting a mortgage for the first time, or you have bought and sold property in the past, there are some common pitfalls that many Australians fall into when applying for loans. We take a look at the five top things you should know before applying for a home loan.
1) It's Ideal To Clear Your Debts First
When you apply for a loan, the banks will want to see all of the assets you currently have and whether you are still paying off any of these. This means that if you used a loan to buy your car, it could affect your eligibility for a loan and make it more difficult for you to borrow as much from a lender.
If you can, try to clear your debts before applying for a home loan. If you only have a small amount left on some loans, this should be easy. If you have a few different loans, it might be a good idea to consolidate these and make it easier to pay them off. Clearing your debts could cause a delay for applying for a loan, but it is well worth it if it means you qualify to borrow more money and from a larger pool of lenders.
2) Your Spending Habits Matter
Do you frequently go out for lavish dinners, buy expensive household items, or go on pricey holidays? Even if you can afford to do these things on your salary, it is worth cutting back on non-essential spending in the lead up to applying for a loan. Banks and mortgage brokers will ask to see your bank statements before they approve you, and they will make a note of your spending habits.
3) The Banks Look At Your Taxes
All well as seeing where you spend your money, lenders also ask to see your last two tax returns when you apply for a loan. If you are behind on your taxes, it's a good idea to get these up to date and to pay any additional amounts before you try to get a home loan.
4) You Can Refinance Your Mortgage
Committing to a mortgage is a big deal, but it’s worth remembering that you are not locked into the same rate and lender forever. You can refinance your home loan to access a better rate, free up some extra money, or swap to a different bank. This means that although applying for a home loan is a major commitment, it isn't for the life of your loan and you don't need to be stuck with a rate that you're not that happy with.
5) Mortgage Rates Change
When you apply for a home loan, the lender will offer you a certain interest rate. However, you don't need to agree to the first offer if you feel it is too high or that you won't be able to pay this in the long term. Waiting just a few weeks could mean accessing a lower rate and saving thousands of dollars in the long run, as home loan rates change constantly.