Getting Home Loan Approval
There are many ways to put yourself in a better position to get the right home loan for your needs. With the Reserve Bank looking at introducing loan-to-value (LVR) restrictions it’s never been more important to put your best foot forward when applying for a home loan.
The Reserve Bank see these restrictions as a way to increase stability of the financial system by reducing the threat of high-risk lending practices (loans granted with low deposits). But what does it mean for you if you are considering purchasing your first home? Below are some considerations to help set yourself up for loan approval.
Save, save, save
Ok, a bit of an obvious one but the more you can save for your deposit the less of a ‘risk’ you are for lenders. You should aim to get as close to a 20% deposit as you can but don’t panic if this feels unachievable as we can discuss other options available to you.
The way you build your home loan deposit also has a lot of merit. If you can show a consistent track record of employment and a history of regular savings in your bank account it will make it easier for you to get loan approval. If you can also show how much rent you currently pay each week whilst you have been saving that will assist because it demonstrates your ability to make similar mortgage repayments.
Zap bad credit
Your spending habits in recent years, payment history and open credit cards all impact on your borrowing capacity. This means that any active credit cards you have are tallied in your assessment – even ones that you don't ever use and have no balance on. Department store credit cards are also included, so it is important that you be careful what you sign on for and keep close track of any loose ends.
Cancel any cards that you no longer use and review your balance limits and reduce them if you can. If we look at the ideal situation again, you should attempt to pay off any remaining credit balances and existing personal loans.
If it is beyond your means to pay off your debts for the foreseeable future you should set up a budget to demonstrate your commitment to paying it off. Putting aside a set amount each payday will help you to methodically pay off your debt and give you a nice record of making regular payments to show to your lender.
Be nice to mum and dad
Another way to reduce your risk in the eye’s of the lender is to get some security from mum and dad. Many lenders will allow you to borrow against the equity in the property of an immediate family member or their savings to help you reach your deposit.
The way this works is that if you had a 10% deposit, your parents could be guarantors for 10% of the loan value to make up the 20%. In many cases your parents exposure can be limited to this portion (in this example 10%) with no liability attached to the remaining 90% of the loan. This allows family to assist you get into your first home without having to contribute large cash gifts.
If you have any questions or concerns about purchasing property don’t hesitate to get in touch.