Getting a mortgage can be a tricky business. You need to prove your income, savings history, trustworthiness and loan serviceability, meaning there are loads of things that can derail your application.
So what are the top things that can kill your home loan application – and how can you avoid them?
Before you do anything, you should consult a reputable financial institution to discuss exactly how much you can comfortably afford to borrow and repay, says Christie Brock, marketing manager, Police Credit Union.
Once you know your borrowing capacity, you can work out your budget – and it’s vital that you stick with it, she says.
“You should only look at properties that are within your price range, because if you can’t afford the repayments, then your home loan application will be rejected,” Brock says.
When you’re ready to begin browsing the real estate listings, you should do so with pre-approval from your loan provider firmly in hand.
“This will clearly define your budget and give you the confidence to go ahead and make an offer when you see the property you want,” Brock explains.
“But even if you have pre-approval, you should always sign a contract ‘subject to finance’ so you’re completely covered. To get a pre-approval you’ll need to provide a number of documents, including income evidence, savings evidence, identification and a list of current liabilities.”
Brock also points out a few factors that can kill your home loan application, and offers these solutions:
- Loan killer #1: High levels of personal debt
“Existing debt can see a home loan application rejected,” she says simply. “Before considering buying a house, put in place a debt minimisation strategy by first cutting up your credit cards, then analysing your spending habits and cancelling unused store accounts, interest free cards or line of credits to reduce your debt.”
- Loan killer #2: No evidence of savings
For your application to be approved, it’s standard practice that you’ll need to contribute approximately 10% of the purchase price as a deposit for the home. “This can be made up of genuine savings, the First Home Owner’s Grant or a non-repayable gift from family,” Brock says. However you plan to fund your deposit, you need to be able to clearly demonstrate where the money is coming from to your bank. The more genuine savings you can show the better, as it shows your would-be lender that you’re responsible with money.
- Loan killer #3: No job stability
Job stability shows the bank that you’re a stable prospect, so don’t go making any sudden career changes when you’re trying to buy a new home. “You’ll need steady employment to apply for a home loan, proving that you’ve been in your current position for generally 12 months,” Brock adds.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan