It’s an exciting time in your life when you start thinking about buying your first home, and given the pandemic has prevented lots of you from heading off overseas, it seems the idea of buying a property is much higher on the list of priorities than it might otherwise have been. So what can you do to ensure that when the time comes to apply for a home loan you will be successful?
Firstly, look after your credit report. It is really difficult to get a home loan if there are adverse entries on your credit report. If you are not sure what your credit report is then you can read about it in a previous blog that I wrote What is my credit report? The easiest way to look after your credit report is to protect your identity – make sure that you keep your identification documents secure and ensure that you make the repayments on any existing debts that you might have on time. If you are living in a share house and move out, make sure that your name is removed from any utility accounts once you have vacated!
Secondly, make sure that you have good conduct on your bank accounts. What does good conduct look like? It means ensuring that you don’t overdraw your account and that your direct debits are not dishonoured when they are due. Many people underestimate the importance of having good conduct on their bank accounts when applying for a home loan and think that it doesn’t really matter, but it does. Most lenders will request an explanation for any transactions which results in your account being overdrawn when you are applying for a home loan.
Thirdly, demonstrate an ability to save. Some lenders depending on the loan to value ratio will require that you demonstrate genuine savings equal to 5% of the purchase amount when applying for a home loan. This can be demonstrated via your bank account or using your rental history. If you want to be able to use your rental history then you will need to show from the rental ledger that you have paid your rent on time for the previous 12 months. Nothing impresses a loan assessor more than a bank statement that shows regular deposits and no withdrawals! If you need to do a budget then check out the calculators on the Australian Government Money Smart Website
Fourthly, demonstrate some stability in your life. This might be through where you live and where you work. If you have a history of moving house and/or changing jobs every 6 months this behaviour will be looked upon unfavourably, so consider staying put. When you make an application for a home loan the lender will want to see where you have lived and worked for the previous 3 years.
Minimise the use of credit facilities like credit cards and buy now pay later to 1 provider. It is not a problem to use a credit card to pay everything and clear it at the end of the month but lots of credit and the use of multiple buy now pay later providers can raise concerns about the ability to handle credit.
Lastly, when it comes time to apply for a home loan make sure that you disclose everything to the person assisting you. It is really easy for us to solve potential problems and find solutions when we know about an issue.
Margaret Godfrey is a Mortgage Broker in Newcastle passionate about educating her clients to get the best financial outcomes. If you are looking for assistance to buy a home give Margaret a call on 0451 471 061 or send her an email at firstname.lastname@example.org