Applying for your first home loan can be a daunting experience regardless of how old you are or how big your deposit is.
While all lenders will review your credit history, they each have different lending criteria and it can be unsettling not knowing what they’re looking for. However, there are some general areas nearly all lenders will review. We’ve outlined them below so you can review your position and make any necessary adjustments or changes to help you be in the best increase your chances of obtaining a mortgage.
1. Demonstrate a savings pattern
Paying off a mortgage requires someone to make regular, consistent repayments. Having a pattern of savings demonstrates that you can commit to putting aside money regularly.
Tip: Understandably, your ability to save can fluctuate week to week due to various lifestyle elements. However, we suggest having a minimum amount you can put away each week regardless of what other sneaky expenses may occur. For instance, you could set up an automated transfer of $50 each week and anything else you save on top is a bonus.
Paying your bills on time is imperative. With the introduction of mandatory Comprehensive Credit Reporting, paying your bills even one day late can have a genuine impact on whether or not you’re able to obtain a mortgage.
Tip: Set up direct debits or calendar reminders to ensure you’re paying your bills on time.
3. Employment history
Again, lenders are essentially reviewing how safe it is to lend you money and how likely it is that they will get their money back. They want to ensure you have been in stable employment for an extended period. That you’re essentially a ‘safe bet.’
While you might be exploring your career options and even considering taking a pay cut to join a new industry, we suggest you hold off if you’re saving for a home. Ideally, you would be in your current job for a minimum of a year before applying for finance.
When reviewing your risk profile, lenders are going to review all outstanding debt you have. That includes everything from HECS debts, credit cards, car loans and even things like After Pay.
Keep in mind, that if you have a $7,000 credit card limit, but you’ve only used $1,000 lenders still consider this as a $7k debt. This is the same with services like After Pay. If you have an active account, even if you don’t currently have any items on After Pay you’re still considered as having a debt of up to $2k.
Tip: While not all debt is bad, it is important to minimise the amount you have currently owing as this may impact your ability to obtain finance or the amount, you’re able to borrow. If you have After Pay, close it down! If you have more than one credit card, try to reduce these and the amounts owing.
In this digital age, everything we do and have is being scrutinised including out lifestyles. Lenders will assess your bank statements and with that, your spending habits. If you have Netflix, Stan, Hulu, use Uber 4 times and week and order Uber Eats every other night you might have a problem. Lenders have become hyper-vigilant to lifestyle charges and too many of these expenses may raise some red flags.
Tip: Try to minimise these expenses wherever possible. While we’re not saying you can’t have a TV subscription service do you need to pay for three? Can your Uber Eats become a weekly treat? Cutting back in these areas will also mean you can increase your regular savings too!