Purchasing a home is arguably one of the most significant financial investments you can ever make. A majority of homeowners make that dream a reality by securing home loans. Unfortunately, getting a home loan isn't always easy. So what can you do to increase your chances of securing a home loan? The following are some top tips to get your home loan approved.
1. Check Your Credit Rating
Lenders are quick to judge your ability to pay back their money after reviewing your credit rating. High scores increase your chances of getting approval on your home loan. If your credit score is too low, consider building it before applying for a home loan.
You can build your credit score by clearing any defaulted debts, paying your bills on time, and requesting collections for inaccuracies on your credit reports. Work on eradicating any negative records on your credit history.
2. Minimize Your Debt-To-Income Ratio
Compare your current income to your debt; does it make you smile? If not, it probably won't amuse your prospective lenders. A huge debt-to-income ratio shows the lending institution that you might struggle to settle the debt. It shows them that you are already burdened with debt, and adding an extra loan wouldn't be a good idea.
It is important to find ways to cut down your debt and demonstrate your financial management skills. You could also find ways to increase your gross income to fix the ratio.
3. Go Big With the Down Payment
A substantial down payment amount automatically brings down the loan amount you have to apply. Lower amounts are generally considered to be less risky compared to high amounts. If you make a high down payment on the house of your dreams, your prospective lender will be quick to approve the relatively lower loan amount. Moreover, with smaller debt, you'll manage to pay it off quickly and easily.
4. Understand the Loan Application Review Criteria
What happens if you default on your home loan? Your prospective lender will need assurance that they can still recoup their money even when you fail to make your payments.
In most cases, the house serves as the collateral, but some lenders might require you to have a guarantor who can step in your shoes if things go sideways. Ask your lender what they look for and strive to meet their expectations.
Your road to owning a home is almost over. These tips should help you maneuver and increase your chances of having your loan approved. Remember to compare different lenders to find one with favorable terms.