We all know how important it is to shop around to get the best deal on any product or service, and home loans are no exception. However, to be sure you're getting the best combination of flexible terms, low fees and interest rates, you need to look at what you can offer the lender.
Here are five smart ways to present yourself as a desirable borrower.
1. Build a good repayment history
A lender will look at your credit history to help work out what kind of borrower you are. They access this information from credit monitoring organisations, who gather records of how and when you pay your debts. Your use of credit cards, personal loans, mobile phone and utility bills are all included.
The lender assigns you a credit rating based on how risky you are. It's this rating that helps determine how many home loan options you have access to and what interest rate you're likely to pay.
A poor rating can see you pay more interest than a comparable loan held by a borrower with a good credit rating.
Lenders offer the best loan terms to those with squeaky clean credit, but that doesn't mean you have to miss out if your credit isn't up to scratch. Consolidating outstanding debts, committing to start paying your bills on time, and fixing any errors in your credit file will help improve your credit score.
2. Limit loan applications
Applying for too many home loans in a short space of time will hurt your reputation in the eyes of the lender. Through your credit file, lenders can access information that shows you've made multiple applications, but they can't find out why your applications haven't progressed to an approval.
It doesn't matter if you've merely gathered responses from various institutions and are in the process of deciding which one to take. The lender sees it as other lending institutions declining your application.
3. Save a decent deposit
The more you increase your borrowing power with a significant deposit, the less risk you represent to a lender. A more substantial deposit and a lower Lloan to Vvalue Rratio (LVR) means you've demonstrated a serious commitment to saving, and you'll be able to qualify for special loan features and interest rate deals.
You're unlikely to be offered a discount rate if you can't show any genuine savings or if you need to borrow more than 80% of the property’s value.
4. Borrow big (within your limits)
Loan size has an influence on the interest rate offered. Borrowing a relatively large amount of money usually gets you a cheaper rate compared to a smaller loan.
Ask your mortgage broker to tell you what loan size will get you a discount. From there, calculate whether it makes sense to increase the size of your loan slightly or whether your financial situation is better suited to a smaller loan.
5. Choose property well
The value of your property will impact your ability to negotiate a better home loan deal. It's not just the price tag that counts, but also the property location and condition. Lenders want to know they can get a reasonable price should they have to sell to recover the debt, which means a well-chosen property will give you more leverage.
It works in reverse too – some properties in certain postcodes attract higher interest rates. These blacklist suburbs are considered risky and make lenders reluctant to offer good lending terms.
Your best chance of securing the cheapest home loan deal is by working with a Yellow Brick Road mortgage broker. Our professional brokers have relationships with a range of lenders and know how to improve your chances of getting a competitive loan.