Many people including first time home buyers are un-aware of the criteria used by lenders to be approved to take out a mortgage in the form of a home loan.
Interest rates also change over time depending on the economic cycle but at the moment we are close to record lows so there is the opportunity to take advantage of low rates if are thinking of buying a property.
Here are 10 tips to consider when making your application:
1. Be clear about your credit position:
Your credit history should be ‘clean’ if you want a home loan. It’s possible for a default to occur on your credit file if you have missed payments on a debt after three months such as a phone bill or utility bill.
This default can affect your file for up to five years with some lenders. From 2014, lenders will also have access to late payment info so keep them to a minimum.
Point out any issues to your mortgage broker ahead of applying for any loans.
This can save you time and help avoid being rejected for finance which can also be added to your credit file.
2. Include all your liabilities & expenses:
It’s important to correctly disclose the number of credit cards and regular expenses you have which are shown on your bank statements.
If a lender finds out you have cards not shown or child care expenses you have left out they may decline the loan due to non-disclosure.
This includes disclosing your total credit limit and number of credit cards as this can impact on your borrowing capacity.
Lenders like stability of where you have been living so they may look at how long you have been at your current address for how often you have moved in the last few years.
The longer you have been at your current address, the less of an issue this may be.
4. Save a deposit: bigger is better:
Lenders like to see regular savings over a period of time with 10% the minimum most will accept.
Off the plan investments can be beneficial for first home buyers still saving towards 10% as you can pay part upfront and the rest when settlement occurs.
5. Have a stable and consistent income:
Lenders like borrowers to have had employment 6-12 months before applying for a loan. Speak with your broker if you are thinking of changing jobs around the time of needing your loan organised.
6. Know your lending limits so you know which properties you can consider:
This goes with having a budget and a clear plan for the future of the home loan. It’s also good to have a buffer for any future interest rate increases.
7. Understand upfront costs to avoid surprises at settlement such as:
lenders mortgage insurance (LMI), stamp duty, legal costs, application fees, solicitor fees and inspection fees. LMI can be avoided if you have a 20% deposit, sizable stamp duty costs can be waived if buying off the plan (depending on what state you are in) and some lenders will waive application fees to get your business.
8. Loan structure:
Low interest rates should not be your only consideration, having the correct features such as offset accounts and redraw facilities can save you from costly interest repayments and refinances in the future.
9. Have your paperwork in order:
Make sure you understand what documentation the lender requires and provide them as stated. Sending in a copy or substitute when asked for can slow down the process. Make sure any documents that need to be certified, are certified ahead of applying.
10. And most importantly, talk to a broker!
Brokers can get you prepared to be pre-approved for a home loan and address any concerns you have. Often the banks won’t give you the best deal directly or tell you what their competition is offering. Speaking with an independent broker will help ensure you get the best deal!
Note: The above is not intended as Financial advice or mortgage broking advice. You should always speak with your mortgage broker to confirm your circumstances and assess what is best for you. If you don’t have a mortgage broker, ask one of our consultants if they can suggest an independent broker who can assist you.