If getting your home loan approved was easy, everyone would be doing it right? Maybe not but there are definitely things you are do that can help you to being an applicant lenders will happily lend money to.
It all starts with the three C’s of Home Loan: Character, Capacity and Capital.
Being aware of these three areas can be the difference to you getting a home loan to buy your dream home.
Character
Understanding what your application says about your willingness to pay the home loan back.
- Don’t overdraw your account or miss loan repayments. Make sure you have sufficient funds to cover direct debits.
- Do the total of your loans and credit cards outweigh your assets? Focus on paying your debts down to have more assets. Lenders do not like to see lots of consumer debt.Just because you are offered the increase or an interest free loan to get that new TV today, it may not be the best option when you need to apply for finance in the future. If you must, try and stick to one credit card with a reasonable limit. Save up for the things you want and avoid personal loans where possible.
It will go a loan way on your home loan application as it will reduce the amount of enquiries on your credit file and improve your asset position.
- Start putting money into savings. Small amounts add up to big amounts over time, not only that it shows you have discipline and can manage your money.
Capacity
Understanding your ability to pay the home loan back.
- How much you make is just one part, the other is your stability of income. Lenders want to be confident the income they assess your loan on is ongoing. Changing jobs every few months makes it very difficult.Obviously there are reasons this is a good idea (promotions, etc.). But even then, you will generally need to be in the same industry. And not in a questionable frequency. Whether you are full time or part time or casual and obviously amount you earn are closely assessed.
- Expenses are just as important as income. Lending is highly regulated. It means lenders much ensure they have a very good understanding of your expenses. Including the general day to day expenses.This is where minimizing your credit card and personal loan debt has a double benefit. Not only does your asset position benefit. It definitely will also shows that you have a better ability to afford the loan you are applying for. Try and eliminate nice to have but not necessary regular expenses from your spending, you might even notice you bank balance thanking you.
Capital
Understanding your ability to pay back the home loan if your income is unavailable.
- What assets do you have to offer as security for the loan? If your income stops, a lender will want to make sure you have a back-up plan that ensures they can get their money back.If you don’t own property already, you will need to have cash available to contribute to the purchase (minimum 5% of the purchase price + associated costs). Again having a savings plan will go a long way to your loan application.
- What sort of asset are you purchasing or do you already own? Some properties are better than others. Lenders will be more willing and comfortable lending to one property than another. ie: a house in a metropolitan suburb is more favored then a 100 acre rural property 100km from the nearest neighbor.
Generally the bigger the market of potential buyers for the security offered and the easier it is to sell, the more favored it will be. This includes the condition of the property.
The above provides a general overview of the main areas that a lender will review when assessing your application. By making some small changes you can have a profound effect on your attractiveness as a good potential borrower.
Edgeview Mortgage staff have completed hundreds of applications; we can give you a personalized review of your current financial position and personalized recommendations you can implement to give yourself the best chance at an approval.