5 Factors That Affect Your Home Loan Approval

Purchasing a home is a big decision. Not only is it a major investment, but the process of applying for a mortgage can be a nail-biting experience. With so many home loans available, and so many factors that impact which one you secure, it's important to know what to look at before you pursue pre-approval.

There are many reasons why your mortgage application could be declined. Lenders review your deposit size, the size of the loan, your employment history, income, debt, and credit history. So, getting your ducks in a row is an important part of the process. These are the five biggest factors that may impact your ability to secure a home loan.

• Credit 

Your credit score is one of the first factors a lender will review when you apply for a home loan. It's a snapshot of your borrowing and payment history, and the higher your credit score the more likely you are to be approved, and for a lower interest rate. Don't wait until you apply for a home loan to find out what your credit score is, you can keep track of it ahead of time. Focus on paying your debt off and pay your bills on time to keep your credit score healthy.

Before you try to secure Home Loan Approval, you may want to speak to the best mortgage broker Melbourne. There are options available to people with poor credit history, but those come with higher interest rates. Still, a good broker can help you find the right loan or offer you advice as to how you improve your prospects of approval in the future.

• Employment History & Status

Every lender will expect you to present proof of employment. Ensuring you have a consistent, stable income is part of assessing the level of risk they take on by giving you a loan. So, most lenders will want to see you in the same employment for one to two years before you apply for the loan.

If you are self-employed, you will need to present tax returns that prove your income, which means you are unlikely to be successful if you haven't been in business for more than a year. If you are a contract worker, self-employed, or work several part-time jobs, working with a mortgage broker may be helpful to your case.

• Condition of Home 

The home inspection may also be a factor in the lender's decision. Minor problems are one thing, but if there are major issues, it may impact whether a lender is willing to offer you a loan or how much they are going to offer.

• Down Payment

In the current market, most lenders expect you to have a deposit of 20%. If you don't have that, there may be a government incentive available to help you get around that. A mortgage broker can help you figure out your next steps. Otherwise, your only option is to keep saving or to look for a more affordable home.

• DTI

The debt-to-income ratio will play a major role in whether you can secure a home loan. The magic number is 44%, and you can determine your DTI by calculating all of your debt and payments, including the mortgage payments you would make, and dividing that by your income.

If you are a first home buyer, you should find a mortgage broker to assist you during the process. It's a great way to limit stress and get someone else to do the legwork to find your perfect home loan.

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