Securing home finance is an exciting step, but preparation can go a long way to increasing your chances of approval. Over a few months, simple financial habits can strengthen your application and set you on the path to owning your dream home.

Here are our tips on how to get financially ready for a home loan application.

Review and Strengthen Your Credit Score

Your credit score is a big factor in home finance approval. You can improve it with these steps:

  • Start by reviewing your credit report for errors or inaccuracies and addressing them immediately.
  • Pay off small debts and avoid taking on new credit, as this can lower your score.
  • Consistently paying bills on time over several months also demonstrates financial responsibility, which lenders appreciate.

Save for a Down Payment and Closing Costs

A strong down payment shows lenders you’re serious about your investment. While the required amount depends on the loan type, aim to save at least 20% of the home price to lower additional costs like mortgage insurance.

Don’t forget to budget for closing costs, which typically range from 2% to 5% of the home price.

Setting up an automated savings plan can help you reach these goals without too much effort on your part.

Reduce Your Debt-to-Income Ratio

Financial institutions evaluate your debt-to-income (DTI) ratio to determine your capacity to manage a home loan.

To improve your debt-to-income ratio, prioritize reducing outstanding debts like credit card balances or auto loans and refrain from significant purchases that elevate your monthly expenses.

Keeping your DTI below 36% significantly boosts your chances of approval.

Stabilise Your Employment and Income

Lenders only approve applicants with steady employment and consistent income. If possible, avoid changing jobs or industries in the months leading up to your application.

If you’re self-employed, ensure your financial records are well-documented, including income statements and tax returns, to demonstrate a reliable revenue stream.

Avoid Large Financial Changes

Big financial moves, like opening new credit accounts or making significant withdrawals, can raise red flags for lenders. Maintain stability in your bank accounts to show you can responsibly manage your finances. Sudden changes may suggest risk, potentially affecting your eligibility for home finance.

Get Pre-Approved and Understand Your Budget

A pre-approval letter not only demonstrates your seriousness as a buyer but also provides an estimate of your borrowing capacity.

Work with a mortgage professional to understand what you can afford, taking into account factors like property taxes, insurance, and maintenance costs. Knowing your budget ensures you don’t overstretch your finances.

Your Trusted Partner in Home Finance

At Nowik Mortgage, we help you navigate every step of the home finance journey. From pre-approval to securing the best rates, we’re here to simplify the process, gather the very best financing options the market has to offer and get you into your dream home.

Contact Nowik Mortgage to start your home finance journey today.

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