In the current home loan lending environment, the duration of loan approvals for some borrowers has increased significantly as lenders increase their restrictions and scrutiny on applications as a result of APRA and the Banking Royal Commission. This has made it harder than ever for some to get finance.
Before you look to purchase a home, ensure you use an experienced broker to help you prepare. To speed up the process, improve your chances of gaining a quicker approval and highlight lending policy changes that may impact you directly, there are a few things that you can do.
1. Save a Sufficient Deposit
Where possible, save as large a deposit as you can. This will improve your chances of a quick approval and a competitive interest rate. If you have a limited deposit, then speak with your Finance Specialist to understand Lenders Mortgage Insurance costs.
2. Review your Expenses and Understand your Monthly Outgoings
Lenders are reviewing applicant’s expenses more closely than ever so be vigilant when it comes to your expenses and identify the areas where you might be able to reduce costs. Many lenders require a breakdown of your expenses across at least ten categories, so monthly budgeting and reviewing your expenses is a great habit to get into, to ensure you will be able to repay any new debt.
The key categories of expenses they typically request are:
● Basic housing and property expenses
● Communications and media
● Groceries and food
● Recreation and entertainment
● Clothing and Personal Care
● Medical and Health
● Education and Childcare
3. Check your Credit Score
Lenders will want to know that you have a good track record of not applying too often for credit and paying any debts on time. One way to do this is to order a free credit report to see how your credit scores look to lenders. Reduced credit enquires and timely bill payments are critical.
Further details on credit scores and sites to access free reports can be found at the ASIC MoneySmart website: moneysmart.gov.au/borrowing-and-credit/borrowing-basics/credit-scores
4. Demonstrate Consistent Employment
Though it does differ by lender, ideally they like to see evidence of a minimum of six months’ worth of current employment, to show that you are earning enough money to cover the cost of the home loan repayments, other financial commitments, and your living expenses.
If you do change employers and stay in a similar role, lenders will typically accept this as normal, though changing employers and professions may create a delay in being able to apply for a loan.
5. Provide Supporting Documentation
You can speed up the application process by having all the necessary supporting documentation ready for when you see your lender or broker.
Usually you will need proof of identification, your income details i.e YTD payslips and your last tax return, a breakdown of your living expenses, and evidence of your assets and liabilities, as well as 3 months’ worth of statements for savings accounts, loans and credit cards.
6. Use an Experienced Broker
An Experienced Broker will shop around for a competitive home loan rate on your behalf. As a guide, owner occupiers, with a 20% deposit and paying principal and interest, can pay from as little as 3.6%.
7. Pay your Bills in Full and On Time
Make sure you are in the habit of paying all of your bills in full and on or before the due dates. Not only will this improve your credit score, but it will improve your chances of being approved for a home loan. Defaulting even once on a bill can weigh heavily on your ability to gain home loan approval.
If you are looking for a home and want assistance navigating what can be a complicated and detailed process to get a loan approval or pre approval, contact me today