Gone are the days of routinely approving home loan applications without the scrutiny of expenses. Now, banks are required to know, with some certainty, what it is that you actually spend your money on.
With this in mind, here's 6 tips to improve your chances of getting your home loan approved.
Watch your expenses
Lenders are required to make a calculated assessment based on your past and current spending behaviour. While it is a reasonable assumption that you may change your spending habits once you get into your loan, there's no data at present that proves this. The greatest predictor of future behaviour, is current behaviour. The lesson here is that if you want a home loan, you should be making changes to your spending before you apply so that lenders know you’re serious.
Lenders will love you if you can show them you have a solid history of saving and that you’ve built up a healthy deposit over time.
A 20 percent deposit is ideal because if you borrow more than 80 percent of the value of your home, you will be asked to pay lenders mortgage insurance (LMI). The bigger your deposit, the less you need to borrow, the less LMI you have to pay, and the lower the risk you are to the lender.
If you are borrowing more than 80 per of the purchase price, you’ll have to provide evidence of your savings and this usually needs to be at least 5 percent of the purchase price of the property to meet the savings policies of the the bank. and the mortgage insurer.
It’s also important to remember that buying a home involves more than just the deposit. There are other costs like stamp duty and legal fees you’ll have to fork out for too. In some cases there may be other ways to provide a deposit, like Rental History or a Family Guarantee.
Prove your ability to repay the loan
Your ability to prove that you can repay your proposed home loan is pretty much the biggest requirement you'll have to meet in order qualify.
You'll need to show a lender that you have a clean and stable track record so that when they assess your loan application, your credit rating paints a good picture of you as a borrower. A series of late or missed payments is a sure-fire way to make sure your loan lands on the rejection pile.
Also, be prepared to disclose everything that involves your finances. This includes sources of income, savings, investments, expenses, any existing debts, and other financial commitments.
Watch your credit cards
Banks love credit cards when it comes to handing them out, but not when it comes to assessing your home loan. It doesn't matter what you currently owe on them evening if that's nothing. lenders assess your loan assuming the card is maxed out and you have to make the minimum payment each month.
If you’ve got one or more cards with a whopping limit, reduce them or close the accounts altogether. You stand a much better chance of being approved for a home loan if you stick to just one credit card with a reasonable limit.
Be job steady
Most lenders prefer you to have been with the same employer for a minimum of six months (not including probation periods). But if you’ve just started a new job, don’t stress. In that case, lenders will look very carefully at what you did for work immediately prior. Often, it’s enough to have been in a similar role in the same industry for the past two years. Just be prepared to provide more information to prove a stable employment history.
The news isn’t so good though if you’re hopping between casual jobs, as the lack of employment stability here is far too risky for a lender. For self employed borrowers, the minimum is 2 years trading history with 2 years financials.
Don't apply to too many lenders
It’s important to compare lenders, but submitting applications to several lenders will show up on your credit report. This can have an impact on your credit rating and it's frowned upon by lenders as it just doesn’t look very good as they can assume you’ve already been denied for a loan multiple times.
It’s a much better idea to compare all your options first with an expert and licenced credit advisor like EquityLend then apply for a loan once you’ve identified the right one for your needs.
Call Jaeneen on 0402 486 199 to discuss your home loan needs.