Simply having a large deposit or a great income doesn’t always guarantee you success of an approval. Lenders still place a lot of weight on “Financial Character”, it’s not simply a case of whether you can afford the repayment.
Often this can become the difference between the bank lending their money to you rather than the next person.
I recommend first home buyers treat your loan application in the same manner they would treat an application for that job they want so badly. Banks often have limited levels of lending they can approve particularly in the lower deposit space so you may well be competing for money.
For some lenders it is no longer just about whether you can afford the repayment, it’s also a question of whether they want you as their customer or would prefer one of the other applicants.
Here’s a few ways to polish up your application to give you the best chance.
1. Do your best to have no or very little short term debts.
The less money you have committed to other debts the healthier you look therefore even if it’s affordable try to avoid having money owed elsewhere.
Owing money elsewhere dramatically reduces the amount available to you for a home loan even if you are meeting your payment obligations.
$55 a week on other debt servicing can reduce your home loan borrowing by as much as $40,000 and reduced borrowing power can make a big difference to the type of home you can buy. (Estimated calculation based on a 25 year mortgage term at 4.95% at the time of writing this)
2. Avoid using or living in your overdraft.
We should remember an overdraft is a line of credit and not your own money. If you constantly live in this you are in essence saying I can’t clear my debt and live within my own means.
People often stay at their overdraft limit even though their savings account is healthy. By clearing the overdraft and staying out of it you show the lender that even though you could use it you are disciplined to manage your own money to meet your expenses.
3. Keep your savings as your savings.
Having a separate savings account for your savings and ensuring you don’t take money out not only evidences you are capable of saving but can be quite helpful if your mortgage payment is equal to or higher than what you may currently be paying in rent.
Regular savings that you can leave alone shows that additional expenses that will come with home ownership like rates and insurances, property maintenance etc have a better likelihood of being met without putting stress on your finances.
You are better to transfer regular smaller amounts to your account and leave it there and once in a while make extra deposits than you are to move a lot of money in then start taking it out throughout the month as you need some of it.
Some lenders do not consider this “genuine savings” if money is going in and out of the same account.
4. If you change jobs keep a couple of pay slips from your previous job.
You may have a legitimate reason for changing but having 2 or 3 jobs in a short period can look like you are unstable. Having a couple of pay slips may go along way in assisting your broker to evidence on your behalf that the change in job was financially better for you. This in turn reduces any concern of job instability.
5. Keep statements for completed hire purchase or personal loans.
When you complete payment of a loan or hire purchase ask the finance company to provide you a detailed loan transaction report. Then offer them to your bank or broker when you apply for your loan.
This shows you have met your past obligations without default or arrears. These are particularly helpful if they also show additional payments to reduce the debt faster. This shows the lender you are both disciplined and focused on paying down debt faster.
Note:
These are just a few ideas that can help strengthen your position and make you a stronger candidate for the banks money. A lender doesn’t want to rely on selling the property as their only way of getting their money back so the more you can do to illustrate you are the right candidate for their money the better your opportunity.