Applying for a home loan can be a confronting experience, whether you’re a first-time buyer or even if you’ve purchased before.
There are a lot of moving parts and the very real prospect that your loan can be rejected if there are errors in your application.
As mortgage brokers, we help clients navigate the labyrinth of questions and documentation required by banks and lenders, ensuring you don’t get lost in the process, or make a mistake that could prove costly.
A lender can deem an application inaccurate or incomplete for even a basic error, and leaving out important information could completely change the outcome.
Here’s five recommendations to help you make a successful application.
- Ensure your deposit meets the lender’s threshold
The amount you put forward as your deposit needs to meet the lender’s threshold or your loan is likely to be rejected. Every lender has strict conditions, including the loan-to-value ratio (LVR), that dictate how much money they will make available to loan. The most common LVR is 80% of the value of the property to be bought, which means your deposit would need to be 20%. So for a property worth $750,000, your 20% deposit would be $150,000, and the lender would loan the $600,000 (not taking into consideration additional costs such as stamp duty and legal costs).
However, this threshold varies between lenders, and promised Federal Government guarantee schemes released in the recent budget can reduce the deposit impost to just 5% for first-time buyers who qualify.
- Show a record of savings
Showing a track record of savings is important – applicants who receive a lump sum in their bank account as a gift or a loan to cover the deposit risk rejection unless they also demonstrate solid saving capabilities.
Prospective borrowers, especially first-time buyers, should adopt smart spending habits as it’s common for lenders to review your bank statements closely including buy-now-pay-later receipts, subscriptions and regular expenses.
- Consider your credit score
Another lender focus will be on your credit score. This is a third-party assessment of your trustworthiness as a borrower and is represented as a number.
As an applicant, you can check your credit score before we approach a lender. If it’s less than optimal and has identified issues like unpaid bills, late or non-payments, your application could be in trouble. However, there are ways that we can work to improve your credit score.
- Get your documentation in order
One of the biggest traps in any home loan application is getting all the necessary documentation lined up and filled in correctly.
The deliberate withholding of information – or worse, providing misleading information – can ensure your application is deemed “fraudulent”. And there is additional information you may be able to provide that could strengthen your application. As your broker, we ensure everything is correctly provided and above board.
- A record of regular employment
Our last tip focuses on the importance of having regular employment. Most lenders insist that applicants have had a steady job for six to 12 months before seeking a mortgage.
If you are self-employed, the minimum period is usually two years, and the lender will want to see the financials of your sole-trader operation or business.
Landing a big job and immediately applying for a mortgage may not be the best option. Lenders want to be certain that you have a reliable source of income and stability. Even if you’ve recently accepted a promotion with a higher salary, it is a good idea to demonstrate consistent employment prior to the change and talk to us about the amount you may be eligible to apply for.
If you want to put your best foot forward with your loan application, I’d be happy to help. As a mortgage broker, it’s my job to make sure your application is filled in accurately, and the mortgage that you apply for is a good fit for your circumstances.