It is the ultimate Australian dream to own a home. In almost all cases though, applying for a home loan becomes inevitable given the high prices of real properties.
Banks and lenders often approve loans based on a borrower’s income and credit history so maintaining a satisfactory credit record is very important.
On the other hand, there are certain steps in the home loan process that you can control, like making sure that you have the complete documents required. Lending approval and processes may vary between banks or mortgage lenders so please verify with your lender for any other additional requirements.
When you first apply for a home loan, you might not be aware of the lending criteria, so we've put together some valuable tips to help make your home loan application process quicker and easier.
1. Get pre-approved early.
This is an important step in your home loan application. To get pre-approval, you will be required to show your recent bank statements, employment information, proof of income, and other important documents so that your lender can verify your financial capability to repay your loan. Choose a broker you can trust, or better yet, be your own broker through YouBroker, which helps you get fast and easy mortgage pre-approval. You can easily apply through our digital portal. Our expert team will manage approval with the lender. With YouBroker, you can easily track the completion and settlement of your loan online.
2. Maintain a good credit score.
Before applying for a loan, it will help if you can check your credit rating. You can get a copy of your credit report through Equifax, Experian, or illion. This will help you evaluate your current credit standing. Lenders usually approve home loan applications of borrowers with high credit ratings simply because those with good credit records are less likely to default on their repayments. If there are any errors, have them corrected as soon as possible.
Lenders will check on your current finances so be prepared to disclose everything to help you get approved, including your income, savings, other investments, any existing debts, and current expenses.
Make sure to pay your bills on time in the months leading up to your application. If possible, pay for all your existing debts. These could be things like car loans, personal loans and credit cards. Avoid opening new credit cards prior to processing your mortgage application. Services like Afterpay and Zip are considered debts by lenders too, even though they don’t appear on your credit report, they are visible in bank statements.
Having lots of existing debt can not only reduce your chances of approval but also your borrowing capacity. Lenders add your available income and then deduct any repayments you are making on your existing debts when they are assessing your suitability.
You need to be able to prove to the lender that you can repay the loan so that when they evaluate your loan application, you can get approved hassle-free.
For those with a low credit score, you can consider using a co-applicant for a joint home loan. For most people, this is typically done with a family member with a stable income and it can boost the chances of getting your home loan approved and also your borrowing capacity. With multiple incomes, loan repayments will also become easier. For more tips on getting a home loan with a low credit score, be sure to check out our article here.
3. Don't switch jobs and make sure you have a stable source of income.
Changing jobs will greatly affect your mortgage approval. From your lender's perspective, your employment history plays a vital role in your capacity to make payments. If your career move makes your income less predictable, this can be a red flag for lenders. Of course, taking on a new job does not automatically disqualify you from getting a home loan. A job change within the same company especially if you received a pay rise for your new role should not raise any red flags. But moving from a salaried position to one that is commission-based can be a problem and may complicate your ability to get a home loan.
Lenders want to see that you have a steady source of income before your loan can be approved. Those who have been with the same employer for a couple of years usually have better chances of being approved for a home loan. If you have recently changed employment, you will be required to show your previous working history. After all, your income is likely going to be the way you make your loan repayments.
4. Get payslips and tax details prepared.
It is a good idea to start preparing your financial documents including your payslips and tax details before you apply for a home loan. Lenders will require financial documentation to determine how much you can afford to spend on your mortgage. Lenders would usually ask for at least two consecutive payslips showing your taxable and net income. You will also be required to submit 1 to 2 years of tax returns.
5. Minimise unnecessary expenses
You will be required to submit copies of your recent bank statements to prove that you can live well within your means. Consider tracking your expenses before applying for a mortgage and limit your spending. Review your credit card spending habit and reduce your credit card limit as banks usually assume that your credit card limit is how much debt you could potentially incur. Your chances of getting a home loan approval are higher when you maintain a single credit card with a reasonable limit. Having a higher credit card limit could also decrease your borrowing capacity as lenders will assume that you spend all of your credit card limit.
Most lenders will look at 3 months history of expenditure when assessing your borrowing power, so it’s a good idea to start reducing and cleaning up excessive spending 6 months before applying for a home loan. This will be easiest by making a budget and sticking to it. This actually has the bonus of seeing how much you can afford in monthly repayments when determining your home loan size.
6. Save up for a bigger deposit and other costs.
Put simply, the bigger the deposit, the less amount you have to borrow and the less lender's mortgage insurance (LMI) you have to pay, which lowers the risk for the lender. Try to save up for at least a 20% deposit or more, having a Loan-To-Value ratio (LVR) of more than 80% is considered riskier for most lenders.
If you are borrowing more than 80 per cent of the property’s price, remember that you need to provide evidence of your savings. Your savings usually needs to add up to at least 5 per cent of the purchase price. Also, consider other costs including stamp duty and other legal fees when saving up for your deposit.
If it’s your first time buying a home, lenders will want to see proof of your savings history. That means supplying bank statements that show regular deposits into your savings account across a period of time. A bonus of this is that there are savings accounts that reward you with higher interest rates for regular deposits. This is not the only method that a lender may check your suitability for loan approval, they may also use rent payments to assess your saving history.
7. Apply for a longer repayment term
A short repayment term seems ideal but it can make the approval process a lot harder. Longer loan terms are more appealing to lenders and can potentially boost your eligibility and your loan amount. The drawback of this is that the longer your loan term, the more interest payments you will need to make over the life of the loan.
8. Don’t apply to multiple lenders at once
Lenders don’t like to see you applying for lots of loans. Every loan you apply for goes on your credit history as credit. While it’s good to shop around and not stick to just one lender, you should make your comparisons before you start applying and have a list of loans that are suitable for you. Applying for multiple at once will reduce your chances of being approved as lenders may see it as hasty.
Each lender has different loan types, each with its own benefits, such as access to offset accounts and redraw facilities, and importantly, they will have different interest rates. Taking your time to shop around, or using a mortgage broker, can save you money across your loan term by decreasing how much you pay in interest.
9. Consult a mortgage broker.
You need to understand the status of your finances even before you apply for a home loan. Sit down with an expert broker to check what you can afford and how much you can afford. With YouBroker, you can calculate your savings, easily compare banks and lenders, and get approved more easily. Our experts are ready to guide you to make sure your loan matches your goals.
Getting a home loan is a big financial decision and you don't want to just pop into your local lender and sign away. Shopping around could save you money and help you get a lender that suits your financial needs.
There are plenty of factors to consider when choosing the right home loan for you and a large number of different home loans to choose from. For some, a fixed-rate home loan may be their best choice and others may find themselves wanting a variable-rate home loan with a linked offset account.
You can check out our articles page to get the lowdown on offerings from Australia’s top lenders or contact us for more information on what the best home loan might be for you.
10. Leverage the power of technology to streamline the application process.
Consider using digital solutions to streamline your home loan application process. With YouBroker, you can compare mortgage rates and other features of home loans through our user-friendly comparison calculator. As the process is digital, you can easily apply online, and our expert team can manage the approval with the lender. We make home loans easier with a simple and easy process.
A top tip to get approved: be honest and disclose all information relevant to your application. If you are unsure if you are eligible, contact your trusted broker to help you in the application process.
Looking to buy a new home? Get in touch with YouBroker! Easily access home loan products from more than 49 great banks and lenders on our web platform! Curate the best loans for you and contact us easily when you need support.
