Are you a first-time homebuyer? If so, you’ve come to the perfect place. In this guide, we’ll explain the exact process of applying for a home loan and getting it approved. If you’re unsure about where to apply for a loan, or who to talk to, and what requirements you need to meet, we’ve got you covered. 

1. Where do you apply?

There are a couple of different places to start, but the most common place to apply is at your local bank. You should be able to go into your local branch and apply for a home loan. There will typically be a member of staff who can guide you through the process. 

The downside is that banks can be choosy about who they lend to. If you have a bad credit history you are more likely to be turned down for a loan. You may also be offered a worse rate than the one advertised. 

If your bank isn’t able to provide you with the best terms, or with any loan at all, your next step is talking to a mortgage broker. A broker is someone who has access to a wide range of loans and can advise you about the best product. They can send your loan to multiple lenders depending on the type of loan you need. 

The advantage of using a broker is that they offer different loans that may have different credit requirements. They can find the best interest rate available to you and provide you with different options when applying for a home loan. 

2. What are the requirements? 

Now that we’ve talked about where to apply for the loan, now we’ll discuss some of the requirements that are needed to actually be approved. There are four different things that most lenders will want to see: 

• Credit score 
• Job history 
• Income 
• Down payment 

Let’s look more closely at each of these requirements. 

Credit Score: Credit scores are an important part of the puzzle. If you have a poor credit score, that doesn’t necessarily mean that you can’t qualify for a loan. The Federal Housing Administration (FHA) allows for scores as low as 500, while conventional loans need at least a 620. How your score is rated may impact the type of loan you apply for. 

Job History: Most lenders need to see at least two consecutive years of employment to show that you have some consistency in your income. It’s okay if you’ve moved between jobs provided they are in the same industry. 

Income: All lenders want to see consistency, so it’s best to prepare at least two years’ worth of salary slips before going to speak with a provider. 

Down Payment: Most lenders want to see some money in the bank, whether it’s in your checking account, 401K, or any other savings account.  

It’s important to see whether you meet these requirements before applying for a home loan. This will give the lender a clear picture of your financial situation and let them match you to the best loan products. 

3. What documents do I need to use to apply?

Now that we’ve discussed the main requirements of getting a home loan, we’ll look at the specific documents you will need to present to a lender. When applying for a home loan, you typically need to have:

• 2 years of tax returns 
• 2 years of W-2s 
• 2 months of bank statements or asset account statements 

It is important to get your W-2 tax forms and your bank statements ready before talking to a lender. You are going to have to fill out a form application and then the lender will run your credit score. They will take your documents and social security number and run them to analyze your gross monthly income to see whether you qualify for a loan. 

Depending on the type of loan you choose, you typically can’t use more than 45-55% of your income towards debt, depending on whether you have a conventional or an FHA loan. Debt includes things like credit cards, auto loans, and student debt. Getting these documents in order will help you get pre-approved for a loan before you go ahead and fall in love with a property. 

4. Can applying for home loans lower my credit score?

Many lenders will add a search mark to your credit report if you apply for a loan with them and they turn you down. This may affect your credit rating, especially if you apply for loans with multiple providers. However, this doesn’t happen if you are selective as to who you apply to and have them check your credit score based on the paperwork that you give them. Be careful not to apply to too many loan providers who turn you down as you may be negatively affecting your credit rating. 

5. What if I don’t qualify for the best rates?

When searching around for a home loan you might be tempted by the bank or provider that advertises the lowest interest rate, often known as the “representative rate”. What you need to know is that only borrowers with the best interest rates will be able to qualify for these rates. If your credit history isn’t great, you’ll likely be offered a worse rate. A bank representative or mortgage broker will be able to help you find a loan product that matches your credit rating, but to access the best rates you’ll need to improve your credit score. 

6. What if I plan to make overpayments?

You can dramatically reduce the term (length of time) of your home loan by deliberately overpaying when you have enough money to do so. Banks and lending institutions know this, and that’s why they have often carefully worded the small print of the loan contract to skew the odds in their favor. For instance, they may stipulate that any overpayments you make go towards paying insurance or interest instead of paying down the capital. That’s why you’ll want to very carefully check the written loan agreement before making a decision.

7. Should I get insurance to protect my loan?

To cover yourself in the event that you lose your job or are unable to work after you take on the loan, you may wish to enquire about payment protection insurance (PPI) or income protection insurance (IPI). These policies are commonly mis-sold by banks and lenders, so it’s best to contact a separate broker to enquire about this type of insurance. Always make sure that your home loan doesn’t include unnecessary insurance. 

Final Thoughts

If you were unsure about how to get approved for your first home loan, hopefully this guide has answered your questions. From where to apply, to the types of requirements and documentation you’ll need, the process is relatively straightforward. If you’re unsure about the best banks to inquire at or you don’t have a broker in your area, you can ask friends or family for a referral.