We all want the best and most affordable home loans available on the Australian market but few of us know how to go about securing such competitive offers.
So that you have the best chance of being approved for credit, you will need to always make sure that your credit score and payment history are in good shape but this is only a start and there are other factors we need to consider.
#1) Improving your credit history
Before applying for a home loan, make sure to get a free copy of your credit report from one of the three main credit agencies in Australia. You will then see what lenders see when they have a look at your application and be able to improve or correct any issues.
Make sure to check your report thoroughly for any mistakes. If anything does come up then notify the credit agency immediately. It can be the smallest mistake like the wrong address or an old credit card account that wasn’t closed off.
Credit score needed for home loan approval
For a home loan approval, your score needs to be between 300 and 850. Generally you will need a score of 620 or higher to qualify for a mortgage and a score of 740 or higher to get the best rates. If your score isn’t looking good, you might want to work at improving your credit rating before making a home loan application.
Get a credit report that is updated
It is always a good idea to have a look at your credit report so that you know what it looks like and you will then know what the lenders are looking at. It will also allow you to spot any mistakes or errors on your credit report that you can then contact them about.
Remember that lenders look at your credit history and based on the information that is provided there, they will then make their decision. So always make sure that you know exactly what your credit report looks like before applying for a loan.
Your full financial profile will be shared when you apply for a loan and that includes credit history, income and assets.
Credit history that will be taken into account:
- Delinquent accounts, those paid more than 30 days late
- Unpaid collections accounts
- A past bankruptcy
- Number of recent applications for credit
- Outstanding debts including credit card balances
#2) Having genuine savings
Putting cash away to save up for your first home can sometimes be a very tricky thing and then there always seems to be some unexpected thing that comes up. However, if you haven’t been saving up and waiting for a tax refund or grants or relying on gifts, now would be a good time to start saving.
Most lenders these days have a mandatory savings policy for anyone who applies for a home loan, more so if you are borrowing 90% of the property value or more. You will need to produce or show that you have been genuinely saving for the last 3 months. There are also different types of saving accounts such as low interest saving accounts, term deposits and mutual funds.
#3) Holding off on career changes
You would think that having a really large salary such as $100,000 would increase the amount you can borrow and in a sense, you may be right but making sudden career changes may not work in your favour when you want to apply for a home loan.
Lenders need to ensure job stability and if you have not been with an employer for at least 6 months or do not have a stable job history this may affect your chances of getting your home loan application approved.
Your finances will come under scrutiny when applying for a home loan and the lender will want to see that you have had your job for a decent length of time.
As tempted as you may be to change careers, wait until after you’ve got your mortgage. You will have to produce copies of your payslip that must be 3-6 months old to the lender.
#4) Reducing debt as much as possible
So together with saving for that deposit, you must be able to show that you can work with money responsibly. So if you have a car loan or credit card debt, it would be wise to make more than the minimum monthly repayments or at the very least, keep up with minimum payments on all debts.
#5) Keeping all your bills up to date
The lender will want to know when and how often you make late payments because of the comprehensive credit reporting (CCR). So if you can set up a direct debit for utilities and credit card payments or maybe make an extra payment during the month, it will work in your favour.
#6) Keeping other applications to a minimum
Every credit application goes on your file, including your mobile phone. So press pause on getting a new phone or TV or any kind of store card. Also rather wait till your mortgage is secure before taking out new loans and contracts.
#7) Breaking with past relationships
Joint accounts are something that you should always sever after a break-up. This would be to prevent your ex’s credit history affecting yours or any future loan applications. This would also apply to any businesses you may have had in the past but have not gotten around to closing the account.
#8) Living within your means
When owning your property, good money management skills are essential. So to show prospective lenders that you can live easily within your budget, you would have to be required to show copies of recent bank statements.
#9) Consider your budget & outstanding debts
This would include any current financial obligations and credit card debt. Having a lot of debt will prevent lenders from approving your loan. If you do have a lot of debt, see where you can get down. Start with your credit card debts and maybe consolidate your debt, making it one big loan that you can pay off.
If you have a financial advisor, it maybe is better to ask them for advice on taking out another personal loan. You also need to have a good understanding of the pros and cons of taking out a personal loan and if it will be something that will be beneficial to you in the long run.
#10) Make sure all your paperwork is organised
You will need all the proper documentation necessary before making the loan application. You may need different documentation so make sure to phone your lender before the application to find out what documentation you will need to provide.
This will normally include your proof of income, bank statements showing proof of savings, and bills addressed to your residence or rental agreements that could form part of the proof of address documentation.
#11) Be honest with yourself concerning repaying the loan
Even before applying for the loan, make sure that you are financially able to keep up with mortgage repayments and note that it will not be above what you can manage. This will prevent you from getting into trouble down the road.
Explaining why you need the certain amount of money that you are applying for will maximise your chances of loan approval, as the lenders will be able to see exactly what it will be used for and why.
This gives the lender confidence in approving you and your honesty would have opened the door for quicker loan approval. Remember to borrow only what you need. You do not want to dig a hole for yourself that you cannot get out of, so be wise and take everything into account.
Get organised before you apply for a mortgage
So what does that all mean? Well in order for you to be successful with any loan application, you must make sure you take the necessary steps in making it easier to get approved.
I hope that this information was useful and that you are now able to make better-informed decisions on loans and how to get approved for them and what to avoid.