If you’re thinking of applying for your first home mortgage, there are some things you can do to help improve your chances of being approved. Buying your first home can be an exciting time, but the thrill will soon fade if your bank doesn’t let you borrow the money you need to close on your purchase.
Before you apply for your first home mortgage, prepare your finances so you have the best possible chance to impress your bank. Here are some quick tips to help you qualify for home loans more easily.
Gross Monthly Income
Your lender will look carefully at the gross monthly income for all borrowers. This is the amount paid to you before taxes are deducted. If you’re applying on your own, provide pay stubs to verify your income amount. If you’re applying jointly with a partner or spouse, make sure you provide evidence of all income you each receive.
The bank will calculate your affordability based on the net income amount you receive, less any existing repayment obligations you have, less an amount allocated for living expenses.
The maximum amount you can borrow will reduce if you have credit card payments, personal loan commitments or other loans to repay. Conversely, the amount you can borrow can increase on your existing income by reducing your debts.
Credit Score
Your bank’s lending assessor will look at your credit score closely to determine what kind of customer you’ve been with your previous creditors. If you have a history of paying your bills on time and managing your debts well, you’ll have no problem.
However, if you have some blemishes on your credit report, spend some time catching up any past due bills. Reduce the balances on your credit cards and get your finances in order.
Employment History
Your lender will want to know the details of your employment. This will include how long you’ve been employed in the same industry or line of work. You can still apply for a first home mortgage if you’re fresh out of college or trade school, as long as your new job relates to the line of study from which you graduated.
Keep in mind that banks often view regular job changes to various different industries badly, as it could be a sign that you’re not able to hold down a long term job. While they’re negative towards frequent job changes, this doesn’t apply if you’ve been made redundant or if you’re changing positions within the same industry.
Down Payment
While it used to be possible to apply for a first home mortgage with no money down, these types of loans are becoming scarcer. If you know you’re going to buy your first home soon, work through your budget and begin putting money aside into a savings account.
The more money you can put towards your down payment, the more lenient your bank will be on your application. Your savings history can show your bank that you’re disciplined enough with your income to handle the responsibility of a mortgage.
Get the Best Deal
Before you apply for your first home mortgage, spend some time getting your finances and documentation in order. Then shop around to find the best deal to suit your needs. A mortgage broker can help you sort through the home loan options available.
You might find you qualify for one of the flexible credit solutions offered by many lenders, such as a FHA Loan or a VA Loan, or another such program that could help reduce the fees associated with buying a home and setting up your first home mortgage.
Watch out for loans like 125% home equity loans and 40 year mortgages – these can seem like a good idea, but generally aren’t due to many factors than can put you deeper in debt than you need to be.
You may want to consider some solid home insurance policies to protect your new home – it’s not always necessary to go for the cheapest homeowners insurance possible, you do want to have reliable coverage as well.