Before you apply for finance, the first thing you should do is to get your personal finances in check.
This means making sure all of your credit cards are paid and up to date and you’re not falling behind on any other bills or payments, because overdue debts will definitely work against you and your application.
Also, have a really thorough budget in place. You can expect lenders to review your monthly expenses, so you want to be able to demonstrate that you know where your money goes.
Keep an eye on your spending
Not only will lenders want to review how much you are spending, most will also want to have a look at your bank statements to examine the details. So be mindful of your spending because your day-to-day expenses will impact your borrowing capacity.
If the lender sees you’re spending large amounts of money on discretionary items like shopping or takeaways, they might doubt your capacity to cut back your spending when you need to repay your loan.
The best approach is to start spending like you already have a home loan.
UNO Home Loans mortgage broker, Jay Ahluwalia says it’s also worth knowing that your credit cards can affect your borrowing limit, even if you don’t spend up to the limit.
For example, if you have a card with a $5,000 limit which you hardly ever use and only keep in reserve for emergencies, a lender will still use that $5,000 figure when they do their calculations about how much they can lend you. A $5000 credit card can cut your borrowing power by $25,000.
Get a fully assessed pre-approval
Most first homebuyers get a bank to pre-approve an amount they will lend them so the homebuyer knows how much they can spend on a property when they start house hunting.
But it’s important that you get a fully assessed pre-approval, where the lender has done a full assessment of your financial situation, including a close look at your income and liabilities. Without this you run the risk of putting down a deposit and then finding that for one reason or another that the lender won’t lend you as much money as you initially thought. The lender may also ask for updated documents after you find a property to verify that nothing has changed.
Ahluwalia says mortgage brokers can help by advising which lender will be able to lend you the amount you need based on the types of liabilities you have, your income and where you’re looking to buy.
Length of time at your job
One of the key things lenders look at is how long you’ve been in your job. Generally, they’ll look back at three years’ of employment history and want to see that you’ve been in your current job for six months or more.
“The bank will look at three years’ history of your work, employment and your residence. If they see that you’ve moved jobs for no apparent reason within the last three weeks and are on probation, it makes it difficult to get a loan,” says uno’s Jay Ahluwalia.
This can be a particular problem for first home buyers purchasing off the plan, where they may not need to pay for the property until a year or two later and your circumstances change.
You might be presented with a great career opportunity, but before you switch jobs, check with a mortgage broker about how this could affect these applications.
If you follow these steps, you will have a much better chance of getting finance and maximising your borrowing capacity so you can buy the sort of home you want.
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