Getting a home loan can be quite stressful, particularly if it is the first time that you apply for one. Being prepared can reduce the stress involved in the application. Here are some important points that you need to consider:

• Read the documents carefully

Read all the agreement documentation carefully and make sure that you fully understand all the aspects of your application. In case of doubt, don’t hesitate to ask for assistance and have your questions answered. This is a very important step, as you don’t want to have unexpected surprises, but to create a long term mutual trust.

• Value of the property

In general the higher the price of the wanted property, the more difficult it is to get a home loan. One way to ease the process is to consider making a higher cash deposit. However, going outside the price range that you can afford can be dangerous. Try to select a property within your allowed price range or lower. In this manner, you will be required to make a lower down payment and your monthly installments will also be lesser.

• Know your repayment plan

It is essential that you know how much you have to pay monthly and for how long. In addition, familiarise yourself with all the possible penalties that you will have to face in case of default. Thanks to the proliferation of lenders and brokers on the internet, there are now many online calculators available to you to choose from that can assist you in determining an estimation of your repayment conditions. Thanks to these tools, you can work out the size of your loan, the amount of equity, the monthly rates needed and the interest accumulated.  

• Additional charges

Make sure that you understand all additional charges that may appear within your loan application, such as the processing/admin fees. Find out if these are a once-off payment or if they are monthly charges added to your installment amount. Remember that you need to have a very clear idea of the total monthly installment amounts in order to plan carefully and know if you can afford the property or not.

• Private Mortgage Insurance

Private mortgage insurance is usually required when your down payment is less than 20% of the estimated value of the property you want to buy. This insurance protects the lender and allows you to become eligible for a loan when you have little or no cash for a down payment. However, beware that this insurance comes with additional costs, which will be added to your monthly payments.

• Proof of continuous income

When buying a new house it is very important to prove that you have a steady income. This doesn’t necessarily mean a salary. It could be the profits from your business or freelancing. The important thing is that you can prove that you have a continuous income that, in time, will provide enough funds to repay the loan.

• Equity

Equity is basically the amount or percentage that you own of the property. For example, if the property is valued at $1,000,000, and your down payment is $300,000, then your equity is $300.000 or 30%. In general, the higher the value of your equity, the higher your possibilities are of getting your loan approved.

• Cash reserves

The ability to prove that you have sufficient cash reserves to repay the loan is very important. Your liquidity is based on your bank balances, investments, pension funds and other forms of quick cash generating assets. This factor is very important, as it increases the confidence in the lender that you will be able to honor your installment payments without problems.

• Pre-approval

Once you have selected a preferred lender, ask for a pre-approval evaluation. In this manner, you will know if the price of the house you want to buy is within your possible price range or not. In addition, once you have obtained a pre-approval, the approval process will proceed much faster.

• Guarantors and second mortgages.

Make you that you understand whether you will be required to provide guarantors or any other form of extra security (for the lenders). A second mortgage also provides you with the possibility of applying for an increased amount. However, the risk is also higher for you and the guarantor.

Getting a home loan is not difficult if you plan it carefully, and you are realistic about your possibilities. Being well prepared is thus essential. Make sure that you properly understand all the factors involved in the process. Don’t hesitate to ask the necessary questions and to ask for assistance from the lenders. Remember, it is their job to provide the correct and complete information.