5 THINGS HOME LOAN LENDERS ARE LOOKING FOR IN AN APPLICATION
- Posted By Prince Lakshman
When seeking the ideal partner, almost all of us have a checklist to look into.
The same can be said about lenders when they decide to whom they should give the loan to. And they are tough when it comes to first-time home buyers.
The list might vary between lenders, but there are five big things that top every list. These top five things are what home lenders first look for in every mortgage application.
Those who are planning to buy a property must sit down with a home loan specialist early in the process. If you’re not ready to buy just yet, there are good advisers who can help you create a plan of action and prepare you regarding issues that can affect your loan application.
The five key criteria includes:
- Capacity to pay
The first thing lenders need to assess is how you’re going to pay back the loan. They want to make sure applicants can afford the debt they’re applying for.
Applicants can have a better chance of acing this criteria by either saving the equivalent of the mortgage commitment over three months, or if they are renting, providing good rental history for 12 months.
If the rent being paid is less than the new mortgage payment, Rachel advises “saving the difference” for three months.
2. Stability
There are many features that constitutes the stability criteria. It includes everything from work history to the length of time in a rental property.
These factors helps lenders create a picture of the applicant, which they use to base their decision on.
3. Sufficient funds
This is probably the most obvious, but not a lot of applicants get this criteria correctly all the time. Applicants must give thought to the funds required to complete the buying process.
For example, if you intend to borrow over 85% of the value of the home, you will need to meet a criteria called “genuine savings”. This can be either through a 12-month rental history or by saving 5% of the funds over a minimum of 3 months.
4. Credit history
Lenders also look into the applicant’s “credit score”. But how do they refer to this score? What does it really mean?
A credit score is a number attributed to you as an applicant based on several aspects.
You can factor in longevity in employment and residence, the amount of credit enquiry in the past five years (whether taken up to or not) and if you have any credit defaults or court judgment against you. If you take a hit on any of these criteria, this can greatly affect your credit score.
The score given to you will be used by the lender to help them decide whether or not it is safe to give you the loan.
Should you decide to apply for a home loan in three to six month’s time, it’s highly recommended not make any changes to your employment or residence or to make other applications for credit as this may have a negative impact on the assessment.
There are lenders who rely on credit score more heavily than others and may use this information differently during the assessment period.
5. Suitability
The loan must fit into the applicant’s objectives. Hence, the applicant must be clear about their immediate and longer term objectives.
This is because the product recommended for the first home buyer who is concerned with ongoing budgeting to ensure the repayment remains comfortable, is very different to the product recommended to the first home buyer who intends to only live in the home for a year and then leverage the equity for a secondary purchase.