Buying a new home is simultaneously an exciting and terrifying experience. You have so many things to consider—most changes of address come with a change in lifestyle, routine, and even outlook.
On top of that, you have to consider your financial stability, and whether you can jump through the various hoops that you need to qualify for a mortgage. Here is what you must do to kickstart the process and get pre-qualified for a house purchase.
Differentiate pre-qualification and pre-approval
Though they sound alike, these two terms refer to different things in home financing. The first thing you should do is get pre-qualification. In this stage, you find out your loan limits based on several self-reported factors. In contrast, pre-approval is when your lender verifies your financial information.
If you get pre-qualified, you signal to your mortgage provider that you are creditworthy. Going through pre-qualification also helps you get an idea of the range of house prices you should consider, saving plenty of time for you and the lender.
Gather information needed for pre-qualifying
A pre-qualification makes it easy for you to get a pre-approval for your home loan when you have to start looking for a house in earnest. To succeed, you need to document several things.
First of all, you need to show proof of income. Lenders want to know where you will be getting funds for your mortgage. If you work for a company, you must compile your, pay slips and group certificate and possibly an employment letter.
If you are self-employed, you have to be more diligent in compiling your proof of income. You have to include profit and loss statements, and your tax returns ( Full Financials).
Your lender might also request information on investments, shares, superannuation and other relevant bank statements. Lenders have different requirements; some might only need your bank statements for pre-qualification. They might need to check if you have income, and request other types of reports during the pre-approval phase.
Get clear on your debt
Knowing your debt ratio is also vital in assessing your capacity for a mortgage. The NHFIC or National Housing Finance and Investment Corporation lists guidelines to help determine if a buyer is financially capable of paying for a loan amount.
Your current debt and the projected mortgage amount will be combined. If it exceeds a certain percentage, you will not be able to qualify for the home loan. In this case, you could seek help from a financial advisor or a planner to help you manage your debts and get ready for pre-qualification and -approval.
Having a pre-qualification for a home mortgage gives you a clear picture of your financial standing. It allows you to skip the guesswork when house hunting, and it acts as a safeguard against overly optimistic assessments. A pre-qualification also tells your lender that you are serious about meeting your payments, and have a stable cash flow to back you up.
Be secure in your financing decisions and consult with FinanceCorp. Our Finance Managers are fully qualified, trained, and experienced mortgage professionals who live and breathe finance. Our headquarters are in Perth WA, and our home loan experts can guide you through any questions you might have about the process. Get in touch with us to see how we can help!