No matter how many homes you’ve purchased or what type of loan you’d prefer, ensuring you’re 100% ready to approach a lender for loan approval is crucial – and the earlier on in the buying game, the better.
Here are our top points to consider.
Think like a lender
Lenders are conservative about who they hand money to and rightly so when you consider they’re lending you masses of cash.
So while you might be very excited about buying your first home , remember that every lender – particularly those lending to a first-home buyer – want to ensure you’re financially smart and viable, and not just for a few months before or after your loan is approved.
Regularly maxing out your credit card won’t impress lenders and neither will late or irregular repayments of any kind.
Therefore, before you approach any lender, minimise all of your debt, starting with your credit card, and if at all possible, cut up the majority of them or at least, pay them off.
If you choose to keep some credit cards, organise a low credit limit as lenders will see a high credit limit as a debt you potentially owe, regardless of whether you’ve ever reached that limit.
Work hard to also pay off personal or car loans.
Savings and spending habits
Once you’ve paid off the majority of your debts, look at what’s leftover in your bank account.
How stable and considerable are your savings?
As well, it’s not how much you have available in savings that counts but how long you’ve been saving for.
Lenders want to see that you’ve been steadily saving for at least a few months if not more.
While you’re studying your savings, consider your home loan deposit.
You officially only need a 5%-10% deposit to buy a home but you will have to pay Lenders Mortgage Insurance (LMI) if your deposit is less than 20%.
With so many costs involved in buying a home, we recommend you hold out until you have your 20% deposit as it will save you money in the long run.
Unsurprisingly, lenders also look more kindly on home buyers with larger deposits.
Strong document proof
So, you’ve made it this far – congratulations!
But there’s one more big point to organise.
Lenders will examine your savings and expenses back to front and inside out before approving your home loan application.
They will demand clear and creditable proof of all of your assets and liabilities including income sources, credit cards, investment shares, debts, superannuation, and other financial commitments including personal loans.
As well, lenders will critique your living expenses for at least three-six months before your home loan application, including your spending habits.
They won’t accept your word or even your complex Excel spreadsheets as proof either.
These details will take awhile to organise but this tough time will be worthwhile when your lender gives you the loan go ahead.
As a side note: if you dislike your job and are considering moving to another employer, we recommend you wait to do so until your loan application has been approved.
With the majority of your loan repayments sourced from your employment, lenders will be triple-checking your job details, including how long you’ve stayed with your employer, with a strong preference for applicants who’ve remained in a stable position for at least six months.
By all means, come to us for lender comparisons and which one will best suit your needs.
At the same time, every lender application you submit will ultimately appear on your credit report.
While this isn’t a huge no-no, lenders won’t like it, particularly if you’ve clearly been denied approval status several times over.
To avoid this problem, aim to plan and research carefully with smart comparisons and advice before you approach any lender.
We’re here to help
If nothing else, getting home loan ready is an ideal opportunity to spring clean your expenses and your budget and ensure everything is ship-shape.
With us by your side as well, we’re confident that this spring clean will ultimately end in the reality of a new house.
We regularly deal with more than 40 of Australia’s biggest banks and specialist lenders so give us a call today at Lending Loop.