A mortgage is often essential when looking to buy a property, given very few people are able to buy their home outright. Typically, one out of every five mortgage applications is rejected, therefore understanding the key factors that can help to improve your chances of success is paramount.
Matters like your employment status and credit score are highly influential during the application stage. Getting on top of these will give you a better chance of attaining that new build home you’ve always wanted.
In this article, we’ll discuss some of the main factors that lenders will look at when you eventually apply for your mortgage, and how you can improve your chances of the application being approved.
Improve your credit history
One of the first things lenders will do is check your credit report, which means it’s vital that you get them in order and ensure there are no mistakes – these can damage your ability to get credit. You can check your credit score from several agencies online, which won’t negatively impact your overall score.
You may need to improve your credit score, which could well take some time to build up. However, this is well worth the effort as lenders will see you as being more reliable.
Did you know that missed payments take 18 months for your credit score to recover? Meanwhile, late payments and debt collection take up to seven years. Hence, paying your bills and debts on time is a straightforward way to improve your credit score.
You can establish a good payment history by setting up automatic payments to meet your obligations with ease, creating positive change in your credit standing.
In addition, you can reduce your utilization rate by asking for a credit limit increase. Avoid opening a new credit line as it usually results in a hard inquiry, negatively affecting your credit rating. If you open a new line, your credit score takes about three months to recover from a decline. For this reason, it’s best to manage your spending and save than allow money to pour out.
If you have problems with your credit history, a mortgage broker Melbourne or in your area can find ways to help get you approved for a mortgage. Mortgage brokers can provide expert advice on repairing a poor credit score to revert a mortgage applicant’s financial standing and make them eligible for flexible loan terms.
They can help find and negotiate debt repayment solutions and financial education programs. Moreover, they can provide personal budgeting assistance.
Increase the value of your deposit
Saving up money for a house takes financial stability and planning, which lenders want to see from a potential borrower. The minimum deposit to save in the current market is usually 5% of the price of the property but building up a larger deposit can increase the chances of a successful application.
As the deposit increases, the transaction seems less risky to the lender and so you may end up with a lower interest rate on the loan. Offering a 10% or even 20% deposit is seen as strong and will greatly improve your chances of the mortgage being approved.
Provide evidence of a stable income
Your employment status and income also play a significant role in the application process. If you are in stable employment and receive regular paychecks each month, the best mortgage books suggest that you will likely be perceived as a creditworthy borrower. This will also determine the amount you will realistically borrow.
Ideally, you need to be able to provide proof of a minimum of three months of income, otherwise, the lenders may be unsure as to your ability to make the repayments on your mortgage. This can be an issue for those who are freelance or self-employed and may not have a consistent income but is not impossible. In these instances, you should try and provide at least two years of your accounts or trading history. Essentially, you want to appear as being profitable, since this will instil confidence in lenders.
If you are a small business or start-up, you are likely going to be making a loss before any profits are seen. This isn’t a reason to be rejected, so long as you can prove there will be significant profits to be made in the foreseeable future.