Are You The Perfect Home Loan Candidate?

4 min read By eCompareMo on April 21, 2015

Every person wants to have his own home. After all, there is nothing more satisfying than going home to your own house after a long working day. While the idea of buying a home is exciting and enthralling, the actual process of buying a home is actually cumbersome—and banks can be really stringent when it comes to screening applicants. Fortunately, you can still prepare yourself before you apply for a home loan to boost your chance of getting approved. What makes a person the perfect home loan candidate? Here are the criteria you need to meet before you think about filling out that home loan application.

Debt-to-income ratio

When you apply for a home loan, one of the very first things creditors ask is your debt-to-income ratio. What is debt-to-income ratio and why is this important when applying for a home loan? Debt-to-income ratio, as the name states, is a computation of your monthly income that goes to the payment of your expenses, debts, and other liabilities. In a nutshell, debt-to-income is computed to make sure that you can pay your home loan if ever you get approved on top of your other payables.

As part of the banks’ rigorous investigation of all home loan applicants, they will compute all your expenses, liabilities, outstanding bills, and see if your monthly income can still afford to get a housing loan on top of your current expenses. If your debt-to-income ratio is too high, meaning there is a huge percentage of your income goes to your expenses, then banks will definitely be hesitant to give you the chance to finance your loan. In these cases, banks may require you to have a co-maker to proceed further with your home loan application. In the Philippines, the most acceptable debt-to-income ratio falls around 30%, though you still have to ask the banks. To achieve lower percentage, you need to either live frugally through making smart budgeting techniques or get another source of income.

Job stability

Let’s reverse the situation: assuming that you are the bank employee in charge of approving a home loan and you see an applicant who is a job jumper whose career history is spotty. As a respectable employee of a bank, will you entrust your money to someone who hasn’t even stayed at a job for more than a year? Job jumpers, more often than not, stay for less than a year in one job and jump from one to another with reckless abandon. For approvers, being a job jumper is enough to raise flags and send your application to the shredder.

(Check out: End Of The Line: When Is The Right Time To Get Up And Walk Away From Your Job?)

For you to become a perfect home loan candidate, you need to show the banks that you have job security and you are planning on staying there for a very long time. A significant majority of banks prefer home loan candidates who have at least two years of tenure in a company. This inspires confidence among loan approvers and gives them peace of mind that they can trust you with their money. When it comes job stability, length matters.

Downpayment

When looking for homes, don’t believe the hype about zero downpayment schemes. While they may seem like an attractive offer, they have negative repercussions, in the long run such as higher monthly amortization and worse, foreclosure. If that is the case, what is the importance of downpayment and why you should shoulder a small portion of your dream home’s cost?

Little do people know that downpayment does the potential homebuyer a huge favor; in fact, it exists because of numerous advantages. The main reason why people should shell out a fraction of the total home cost is to lighten the mortgage by reducing the total loan amount. By having less pressure on your cash flow, you can pay off all your expenses and still be able to pay off your amortization. Furthermore, having a sum for downpayment is a good indicator that you are definitely ready to own a home. The average percentage of downpayment for almost all home financing programs is 20 %.

(Check out: BSP Warned Against Zero-Downpayment Schemes on Real Estate Purchase)

Credit score

A lot of Filipinos have no idea what credit score is, or at least doesn’t have a good grasp of what it can do to their lives. A person’s credit score can make or break a person, and a person can make or break his credit score. Accrue low credit score and you will have a hard time acquiring financial products like credit cards, loans, and others. Meanwhile, having a very positive credit history will allow you to just breeze through the line since banks are confident that you will eventually pay them.

Your credit score is a summary of a person’s creditworthiness. To get a person’s credit score, credit bureaus get information from banks, government agencies, and other possible sources to determine whether or not you are diligent with your payment of dues. To have a good credit score, you only need to do the following: pay your bills on time and in full, avoid bankruptcy at all costs and do not let your non-payment of debts become legal battles. Keep on doing that you will have a very good credit score in no time.

It is exciting to scout for the home of your dreams and think that one day, you will be able to afford one. To become the perfect home loan candidate, you need to prepare yourself as well as your finances so you can amp up your chance of finally getting your dream home.