How To Get Your Home Loan Over The Line

Owning that dream house is easy if you can get the right home loan. However, approximately 25% of the home loan applications are rejected for reasons as trivial as incorrect paperwork, not having adequate savings or not disclosing that emergency credit card.

Why do lenders reject loan applications?

Financial institutions in Australia have a duty to lend responsibly. If they believe that you cannot repay the loan in the future, they have the responsibility to not lend to you. 

Successful loan applicants have high credit score and do not pose a risk to the lender who loans the money to them.  

Any lender will scrutinise your financial history for previous loan applications (whether rejected or approved), due payments, open lines of credit and proof of regular income and genuine savings.

So start preparing for your home loan well in advance and increase the chances of getting your application over the line by following some simple tips:

Credit History

Your credit score is the biggest factor that will decide the outcome of your loan application. A low credit score means much lower chances of approval.

• For an unblemished credit history, make sure you make all your bill payments on time. A missed utility payment can stay on your credit file for 7 years! Also, lenders do not appreciate too much activity on the file.
• Too many debts weaken your prospects of approval. Even if you owe $1000 on a credit card with a limit of $10,000, banks will consider you a high risk individual. 
• Give up that extra credit card and close down other lines of credit if possible. Having 3 to 4 credit cards with unpaid amounts show that you are unable to manage your finances properly and a lender might not want to take a chance on you. 
• Pull out your credit file for free from sites such as My Credit File and check for any black spots. In case you spot any dues that you have already paid, fix them up before applying for a loan.

Remember, having undisclosed credit cards or loans will not help you. Everything will be visible to the lender in your credit history. So be honest and forthright about your financial condition. HashChing certified brokers could help you by communicating your side to the lender and increase your chances of approval.  

Steady Employment

Being employed at the same place for at least 12 months before you make a loan application increases your chances of approval many times. All lenders look for proof of steady income before they approve your loan. Continuous employment makes you much more likely to honour your repayments in the future.

In case you are planning a job switch, refrain till you at least get an approval. Also, make sure to save a decent amount that can service your repayments for the next few months in case the switch doesn't work out.

Savings

Lenders are interested in your ability to save as it reflects on how you manage your finances. Staying rent free with your parents and not having genuine savings for at least 6 months can make a lender doubt your financial position. 

Having a minimum 5 per cent deposit in genuine savings is required by most lenders. Saving regularly over a period of time reflects that you have the ability to pay off the loan in the future. A windfall gain such as an inheritance or a bonus is not enough to build up your credibility. We recommend you use our budget calculator and start building your deposit now. Plan your finances now, as overdrawn accounts will not help your case.

Also, while you save for a deposit, don't forget to factor in an extra 5% to account for accessory payments such as stamp fee, brokerage fee and application fee, lest you are left wanting later. 

Documentation

Often, the paperwork involved in home loan application can bog you down. Nevertheless, being thorough and precise with your paperwork can save you and the lender a lot of trouble. It is important that you attach the exact documents mentioned in the application and not use substitutes such as tax receipts for pay slips. 

It is prudent to get your documents checked by a mortgage broker before you file the application. In case you are a self employed individual and do not have proof of regular income, you can apply for a low doc loan, which requires much less documentation at a slightly higher rate of interest.

The right research

A successful loan application is backed by thorough research. 

• First and foremost, check your borrowing capacity before making an application. You can use an online calculator to ascertain how much you can borrow and also calculate your repayments to plan your finances better.
• The second step is to compare loans and choose one that offers the best interest rate plus other desirable features such as an offset account and flexible repayments. Keep in mind that cheapest is not the best, always.

Don't choose the loan first and tailor your needs around it.  Think about your requirements first and then choose the loan that best fits you. Take guidance from our mortgage experts who are always ready to answer your queries online, for free.