It’s harder to get a loan today than it has been in the last 20 years, according to finance expert, Stu Varidel of Heart Mortgage Services.
With lenders tightening up on who they lend to thanks to increased regulation, the banking Royal Commission and Australia’s staggering level of household debt, here is Stu’s advice on how to help get your home loan approved.
Save Like there is no Tomorrow:
You should be saving the same amount in a separate account each pay day to show you’re able to manage your money. Lenders will generally want to see a savings pattern of at least 6 months and saved at least 5% of the purchase price of your new home.
Stu recommended those looking for a loan approval try to save at least 10% of their wages, however noted that realistically, savers will need to try to save more than that. If you are buying your first property and ultimately want to live there you should be able to save the difference between how much you would pay in rent and how much the normal mortgage repayment will cost you. If you can’t do that then you need to adjust your situation to afford to live in the property you are aiming for, such as reducing your expenses or lowering your price point. Lenders are looking for proof that you can afford the loan comfortably, regardless of what you earn.
Get a Hair Cut and a Steady Job:
All lenders want to be sure that you’re stable and that your employment history and proof of how long you’ve lived at your current address are good ways to show this stability. To help the chances of your loan application being approved, lenders will look favourably upon those who have maintained the same residential address for two years plus. In addition, it helps to have been in the same job for 24 months or longer.
However, if you’ve just got a new job in the same industry that you’ve been in for several years which pays more money, this won’t affect you provided that your probation period is over.
Be Budget Minded:
The way lenders see it, if you spend everything you earn, there’s no way you’d be able to pay off a loan. Upon any loan application being received, you will be asked to list your expenses. This isn’t something you can just make up as the lender assessing you will check your day-to-day account over the past 6 months to make sure you are being honest. That’s why it’s very important to have a budget that you stick to.
Know your credit history:
The real benefit of being across your credit history is that you can get a look at how the lender will assess you and pre-empt any assumptions they might make. It will also help you understand the way every application appears on your credit and highlight any outstanding loans and defaults.
If a default or loan comes as a surprise to you during the application process, you will be automatically declined.
It’s fairly obvious but absolutely critical; banks want you to pay them back. So, if you have paid off loans faster than is needed, this will make you more attractive. Make sure that, at the very least, you always pay on time and you don’t miss any payments throughout the entire term of any loan that you have. Lenders now have access to this information in your credit file!
Pay your Bills:
We all lead busy lives and our time poor nature makes it very easy to forget to pay a bill. If you are applying for a loan soon, it’s really important to be on top of all of your bills, especially repayments to credit cards and other loans. That’s because lenders have to check your credit history. Lenders will be extremely hesitant to extend a loan or credit if you can’t pay your current cards on time.
Don’t Do Debt
If you can, don’t be in debt. Avoiding debt strengthens your borrowing potential. Lenders will often provide credit cards with limits higher than you need. Even if you don’t hit the limit, home-loan lenders will assess you based on the limit you have, not your actual spending. This can drastically affect your borrowing capacity. Be sure to reduce any credit card limit down to what you realistically need.
Don’t Afterpay
Afterpay and Zip Pay are actually considered credit and each time you apply for Afterpay or Zip Pay you’re effectively getting a loan. This is recorded on your credit file which will adversely reduce your credit score. Also, this is viewed unfavourably, because it implies that you’re already struggling to afford your lifestyle. The best way to avoid this is just don’t Afterpay!
Disclaimer
This information is current as at 27/11/18. This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.