For first-time buyers, the home loan application process can feel quite overwhelming but if you are prepared for all the financial questions ahead you will be in a much better position to have your bond approved.
If you are getting ready to apply for a home loan, you need to assess your financial well-being and you should know the answers to the following questions:
What is my credit score?
Would-be homebuyers should know their credit score and check their credit record to ensure that everything is in order. Negative credit information can be recorded by mistake. Checking your credit record before applying for finance will allow you time to rectify any mistakes that could harm your bond application success. Consumers are entitled to a free credit report each year, so they should be sure to check it.
Any accounts or bills that have been handed over for collection should be paid and sorted out before applying for finance. Defaults or slow payment notifications will hurt a credit score, so it is important to make payments timeously.
Find out more about your credit score
What is my annual income?
The bond amount that a consumer qualifies for will be determined by their income. So it is important to include any bonuses or annual investment returns when making this calculation. Annual tax return documentation will assist you in determining your actual yearly income. Get these documents ready before applying and ensure that you are up-to-date with all tax submissions.
How much debt do I have?
Disposable income is a key consideration when the bank considers the home loan amount they are willing to grant. For this reason, you should try and get rid of debt or at least pay it down as much as possible. The bank will require applicants to provide them with a list of their monthly expenses to determine the debt-to-income ratio. The ratio will be used as a measurement tool to determine the appropriate bond amount that the applicant can afford. Having a lower debt-to-income ratio will be highly beneficial to consumers who want higher bonds.
More here on your debt-to-income ratio
What is my financial worth?
Financial worth is more than just your income. It also relates to any assets owned, such as vehicles, investments, and income-generating properties. All of these aspects add to your net worth and will have a bearing on the amount that the bank is willing to grant.
What kind of deposit can I put down?
More often than not the bank will require a deposit. The deposit can vary between 10% and 30% of the purchase price of the property depending on the circumstances. Aside from the deposit, you will also need additional money for the costs associated with buying a home such as transfer fees, attorney fees, and bond costs.
What can I afford?
In an ideal situation, the monthly house payment, which includes the bond, interest, taxes and insurance should not take up more than around 30% of your income before taxes. It is possible to get an idea of your affordability levels from an online bond calculator or with the help of a financial professional. A bond originator service such as MyProperty Home Loans can also provide valuable guidance as to how much you can comfortably afford.
