Words: Anne Schauffer Images: Supplied
When you feel you’re in a position to afford to buy a home, and need a home loan, the smartest move you can make is become prequalified – in other words, before you head out to find your new home, find out what size loan you qualify for. It’s very disappointing to find your perfect home, and not qualify for that size loan.
How to get prequalified
The wonderful thing today, are the online tools available to assess whether you’re eligible for a home loan, and what size. Click and go, it only takes minutes – look at ooba’s home loan affordability calculators on its website. It’s important that you put in accurate figures to get an accurate outcome – this tool is an indicator, not a guarantee, and you’ll have to supply all the required documentation – salary slips and so on – to secure your loan when the time comes to make a formal application.
If you don’t want to be prequalified online, but prefer to go into your bank’s home loan department, of course you can do that and they’ll explain everything to you, including the additional fees which you’ll have to pay, like transfer costs and so on.
Rhys Dyer of bond originators ooba explained the criteria which banks use to award home loans. “Banks assess affordability and credit profile first when it comes to bond applications. Affordability is now based on net disposable income, which for many means access to less credit. A good credit score is all-important. Banks also look at your current financial situation, whether or not it might change in the next few years, as well as the stability of your income.”
A good credit score
You need a good credit score to be approved for a home loan. Dyer says, “Every year, ask for your credit score from a credit bureau, or use an online tool like ooba’s bond indicator so you always know what your status is when it comes to assessing your financial risk to a potential lender. Your credit score will be determined by issues like how well you manage your debt, how many accounts you have, and how long you’ve had them for, among others.
Is it possible to get a 100% home loan?
It is, but once again, it’ll be about affordability – it’ll depend on whether you can afford the monthly repayments on the amount for which you’re applying. For those who don’t have a deposit, but have a good credit rating, it’s definitely worth applying.
The interest rate
It’s important to negotiate the interest that the bank will charge you for the money you’re borrowing – if you work through a bond originator, they will, for no charge, take your home loan application, and present it to a number of different banks. That way, if you’re granted a loan by a few of them, you’ll be able to choose the best deal for you.
Is it better to opt for a fixed or variable interest rate? According to Dyer, “If you’re working to a tight monthly budget and can afford to, it might be wise to fix your interest rate even though they’re usually higher than variable rates. Before buying a property, “stress test your budget to ensure you’ll still be able to meet your bond repayments if rates start to rise”.