How to Ensure You Can Secure a Home Loan?
For many Australians owning their own home remains an impossible dream. Despite record low interest rates, many people still struggle to secure a home loan and are unsure how they can better improve their chances of being approved in the future. Getting a home loan takes planning and foresight, with a few simple steps, over time you will greatly improve your chances of securing a home loan and fulfilling your dream of owning your own home:
Set a Goal
Know exactly how much you need to borrow and how much your repayments will cost. Online calculators can be helpful in seeing what your need to save and how much your repayments will eventually be.
Save a deposit
This should go without saying but the more you save the more likely you are to secure a home loan and the better off you’ll be financially. You need a deposit that is big enough for 20 per cent equity and to cover stamp duty and conveyancing.
Budget and Save
For at least six months before applying for a loan you should be budgeting and saving money for a deposit. Lenders want to see evidence of good financial management and a savings account showing consistent savings is the best way to demonstrate this.
Have a stable career and income
Lenders want to be comfortable knowing that you will have a stable income for the foreseeable future. The best way to demonstrate this is if you have a stable employment history with a gradual increase in income. If you are looking for a change in careers it is best to wait until after you’ve secured a home loan.
Have a clean credit file
If you have defaults, late payments and multiple credit applications on your credit file lenders will be wary of you and much less likely to approve you for a home loan. In the years leading up to your application you should ensure that you have made consistent payments on your credit cards, phone bills and other forms of credit and have not defaulted on any payments. Additionally you should make sure that you do not apply for multiple forms of credit as these applications appear on your credit file and can make it appear that you live outside your means.
Check your credit report
It pays to obtain a copy of your credit report or credit score before you make your application. Lenders use your credit report to assess you eligibility for a loan, so getting a copy before you’ve made your application will prevent there from being any nasty surprises.
Limit Credit Card use
If you have multiple credit cards you should try to reduce the cards to one. Definitely do not apply for any new credit cards or store cards and if possible you should pay off and cancel all of your credit cards.
Have a stable rental history
If you are currently renting, having a stable rental history will demonstrate your ability to service a mortgage. If possible you should avoid moving to different homes on a regular basis.
Get your tax in order
You should ensure that you have filled out any outstanding tax returns and have no tax owing to the ATO prior to starting your application. This is particularly relevant if you are self-employed.
Get your bank accounts in order
Lenders usually require your last 3 to 6 months of bank account statements as part of the application process. As such you should ensure that you have no late payments, over limits or overdraws on your statements.
Talk to a broker
if you are not confident in your ability to secure a loan, talking to a mortgage broker can help you get prepared for your application and walk you through some of the more difficult aspects of the application process.
Taking out a home loan is a major commitment that you are likely to be paying back for 25 years. As such you need to be prepared and organised well in advance of making your application.
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