First Home Buyer Guides
Applying for a loan to finance your first mortgage can seem like a daunting process.
Knowing what lenders look out for and the things you can do to increase your chances of obtaining a loan will help make the experience of buying your first home a much less stressful one.
All of the lenders you approach will have a list of things they check off. This acts as a scorecard to help them determine whether or not they should approve your application.
This list will include things like:
The amount of money you would like to borrow and how much you have saved as your deposit
The size of the property when buying off the plan
Your credit rating
Your current employment status and income
Any existing debt you have
Your spending habits
Let's go through the list to see how you can help get yourself finance ready.
1. The amount of your loan
It would be wonderful if we could simply tell the bank how much we want however, the amount you can borrow will be capped at your borrowing capacity.
Many banks in Australia have an online pre-approval form application. Once you enter the required information, it will give you a preliminary assessment of your finances and tell you how much you are potentially able to borrow from them. Having this pre-approval is a great way to check what kind of property is within your budget.
2. The size of your off-the-plan apartment
In order to qualify as a home-loan, some banks require the apartment be at least 40 square meters in total size. If you are applying for a loan after you have paid your deposit, don't forget to double check it's size before agreeing to the property contract.
3. Your credit rating
Your credit rating is a score, anywhere between 0 and 1200, that changes depending on your credit and payment history. Things like the amount of credit cards you have to how punctual you pay your phone bills will contribute to how high your score is. The higher the score, the more likely your loan will be approved.
You can check your score online for free and it's a good idea to see what you are going in with. If you think your score is lower than you think it should be, investigate why? Perhaps you are still financially linked to an old housemate who is bad with paying bills on time. You could even have a forgotten about an overdrawn bank account still open that you can easily close. Best to tie up loose ends so you don't apply for a loan unprepared.
4. Your employment status & income
It goes without saying that if you are working full-time and are earning a steady, decent income that it shouldn't be too hard to get a loan. People who are self-employed will have to make sure all their BAS statements are up-to-date and on hand, ready to show.
5. Any exixting debt you have
If you have taken out a new credit card or a personal loan within a year of applying for a home loan, it could affect your chances of approval or potentially decrease the amount you can borrow. However, having an existing loan and showing you are easily making the repayments on time can show the lender you are a good candidate for a loan too.
6. Your spending habits
Today, technology is allowing lenders to have more insight into your spending habits. While you may make more than enough income to cover all your necessary expenses, your spending habits may paint a different story.
With electronic income verification, some lenders are able to scan your bank account to see where most of your disposable income goes. To keep your profile looking sharp, be mindful of your spending habits for at least 6 months before applying for you loan; try to keep any big dips in your balance to a minimum.
Going through this list will make you better prepared when applying for a loan. Now to find an amazing off the plan property.