If you haven’t refinanced recently, you may find that you have to jump through a few extra hoops when obtaining finance. Likewise, if you’re trying to get a home loan for the first time, it’s useful to know what can improve your chances of getting that all important loan.
So we’ve compiled a list of ways you can turn yourself into a more appealing borrower…
1. Refinance before changing jobs
When obtaining finance, the length of time you have been with your current employer can help determine if you’re eligible. As a general rule of thumb, when lenders mortgage insurance is involved then at least six months with the same employer is sufficient, but this will vary depending upon an individual lender’s conditions.
A good idea, then, is to stall any thoughts of that job move until after obtaining finance has been sorted. Incidentally, if you’re thinking of going self-employed in the near future, consider a mortgage that won’t need changing in the near term, as it will be difficult to refinance during the first couple of years you are in business.
2. Repay other debts before obtaining finance
It’s best to get into the habit of repaying credit cards, store cards, and overdrafts anyway – it’ll save you money – but having less of this kind of debt will also increase your chances of obtaining finance.
Lenders take into account the amount of outstanding debt you have, and the monthly payments you make, when assessing whether you can afford a new home loan. Worryingly, some lenders may even assess affordability using the potential amount of debt you could have, assuming that you have maximum balances on all your cards and overdrafts, instead of the balances you do have.
If you don’t use a certain credit card or overdraft, why not close it? Also, try to put all expensive debts onto the cheapest card you have (applying for a new 0% balance transfer credit card will impact your credit score – so leave doing this until the new mortgage has completed) and close the rest instead of repaying several and having lots of opportunities to spend.
3. Check your credit report
It’s important to check your credit report before applying for a mortgage as there may be items that have been repaid but appear outstanding, or even fraudulent applications made in your name. Getting this all dealt with prior to applying for a mortgage, before any money is lost, is a simple thing you can do to improve your chances of obtaining finance.
4. If you already have a mortgage, overpay
If you’ve got some money collecting little more than dust in a savings account, consider making extra repayments on your current mortgage instead.
If you have a particularly high loan-to-value (LVR) – the amount of mortgage in relation to the value of your property the higher the mortgage rate is likely to be, and it could also make refinancing more difficult. So, by paying extra you’re reducing the amount of mortgage you have and lowering the level of risk that a lender has to take on, and both of these could work in your favour when a lender is assessing the application.
As an added bonus, by paying extra and reducing the LVR you’ll be able to repay the mortgage quicker and will have access to cheaper deals, thereby helping you repay your mortgage more efficiently and cost-effectively.
5. Buying for the first time? Can your parents help?
The explosion of property prices has had a severe impact on how big mortgages are in relation to wages, and securing that big mortgage could be even harder.
But while you may be able to afford the monthly repayments, another side-effect of high property prices is that it’s really tough saving a deposit, even just 5 or 10%. So enlisting the help of financially-supportive parents can really make the difference, and there are several ways they can help:
- They could help by giving or lending you part of the deposit. Borrowing money from family can sometimes cause trouble though, so be sure to agree repayments that all parties are happy with. Borrowing from family will usually work out cheaper than borrowing elsewhere, and of course, it doesn’t appear on your credit report.
- They could act as a guarantor on your mortgage. This means that they guarantee that the mortgage payments will be made, so they become fully liable as well (although in some instances this liability may be limited to a certain percentage of the mortgage amount). Guarantors normally have to be able to cover their own bills and your mortgage payment.
- A number of providers offer schemes for families to help get first-time buyers on the property ladder – do your research or ask us what the options are.
- Your parents could borrow to help fund your deposit. The least preferable option, but an option nonetheless, they could take out an unsecured loan. However, this should be thought through very carefully as your parents will be out of pocket, and you may not be able to pay them back in the near term, or at all. You could set up an arrangement whereby you pay this loan as well, but remember that you’ll have your mortgage and bills to cover, so you need to consider if this is really affordable for all parties.
With any sort of arrangement where somebody takes a financial interest in your mortgage, we would strongly recommend seeking financial and legal advice.
6. Keep your house in order
When going through the application process, your property’s value will be assessed. If you need to borrow at a high LTV this will almost definitely mean a valuer physically coming round to inspect the property.
It’s the same as if you were trying to sell your house – it needs to look its best to command the highest price. So make sure the outside of your property is well maintained and that the interior is also. For the purposes of a basic mortgage valuation, they are looking at saleability of the property. The higher the value of the property, the more likely you are to secure a lower mortgage rate.
7. When obtaining finance enlist the services of an experienced Finance Broker
As opposed to going directly to a lender, making use of a good Finance Broker can improve your chances of getting a mortgage.
At Blue Key Finance we will search the market and will have knowledge of lending conditions particular to each lender, which, as well as your personal financial situation, they will take account of before making any recommendations to you.