Obviously no one wants to go through all the trouble of applying for a loan only to have their application rejected or declined. But how do you create the perfect home loan application? While lenders are very explicit about what you should show them, they are less forthcoming about what exactly they want to see. In other words, they will tell you what information to include, but they will not necessarily tell you what looks good and what does not.
Above all, the perfect mortgage application will show the lender that you can afford the property, make the mortgage payments on time, and that you are generally a great candidate for loan approval.
Show you can afford the mortgage
Ultimately this is what it's all about. More than anything else, a loan application is designed to show the lender that you can afford to pay back the mortgage.
That said, even if you can afford the repayments, a lender is going to need much more convincing if you're up to your eyes in ongoing expenses (think credit card debt and the like) than if you have little-to-no personal debt.
One of the best ways to show that you can make repayments is to show lenders that you've successfully made other repayments already. While it's possible that this can feel a little bit like a Catch-22, if you've made the effort to stay on top of your bills and pay them back on time you will be a more promising applicant than someone who has had trouble staying on top of their expenses, historically speaking.
Show you can keep your job
Many lenders will make six months of continuous employment – as well as not being on professional probation – a hard requirement for their loans, and it makes sense why: stable employment means a stable income, and stable income means steady repayments on your mortgage. This, obviously, is what lenders want to see.
If you're self-employed, this can be a little bit trickier, because you may not have the standard sort of pay slips that are usually requested. Don't worry. Your goal is to show the lender that you have consistent income. Typically lenders will ask a self-employed applicant for two years of tax returns: this is used to find proof that the business is moving along smoothly and that the borrower is maintaining enough income to meet their minimum requirements for the loan.
By talking to your accountant, and possibly your broker, a self-employed home loan seeker can potentially find a way to explain things like significant one-off expenses to a lender.
Don't rush the application
In some ways, we should have saved this section for last, because this simple advice is possibly the most important piece of the entire process. Since you're not going to lie on your application, the key to a perfect home loan application is that it is completed exactly as requested by the lender.
Because of this, making mistakes could be costly – in fact, it could be the reason your loan application is declined. No one wants to miss out on that perfect piece of property because they forgot to include their most recent payslip and instead used one from three months ago. Be careful, be through, and be organized.
You'll want to make sure, for example, that the paperwork you are filling out matches the information you gave on your initial loan application exactly. This attention to detail will go a long way toward making sure that your application is not rejected for minor inconsistencies or other clerical reasons.
Following up on that in a slightly different direction, it can be tempting to have your broker (if you have one) to send out multiple copies of your loan application simultaneously. You should ignore this temptation.
For one thing, if your application has an error in it – say you forgot to include a source of income or there was another accidental omission – that error will be seen by multiple lenders, rather than just one.
Secondly, no two lenders are going to have exactly the same lending requirements. If one bank is declining you because you are self-employed – regardless of your financial situation – another may be perfectly happy to accept your application.
That said, each loan application will appear separately on your credit file, and some lenders may decline your loan simply because you have too many credit enquiries over a short period of time. It's important to keep an eye on this balancing act.
If your loan was declined, what do you do?
Let's say that the perfect home loan application was not so perfect at all, and you still wound up with a bank turning you down. What's next? Where do you go?
First thing's first, you should ask follow up questions to the lender. Not only could you find yourself being able to overturn the decision – if the bank is looking for more information you have handy but hadn't provided, for example – but even if you don't manage that, you will know exactly why you were passed over, and subsequently you will know exactly what to fix.
If you don't get good guidance from the lender about why your loan was declined, you can take matters into your own hands. You'll want to clear out any credit card debt you may have before applying again, as well as checking your credit file for anything that might be a red flag to banks or other lending institutions. No one wants to find out they have bad credit by having a declined loan, but it's important to know at any rate.