The mortgage market is not what it used to be. While lenders are certainly keen to get your business and will go a long way to come up with a better loan offer than their competitors, the details of your loan application and your financial status at time of the application can make the difference between approval and decline as well as the pricing of your loan offer.

 

Check your credit report

Take the time to order and check the contents of your credit report before making any finance applications. Your report will detail any potential problems from your past in terms of bad loans or unpaid debts. While most people do know if their report contains some bad credit, in some cases they only find out about a past problem after lodging a loan application. Advance review of the credit report will allow you to correct any errors that may have been made by the credit provider as well as repay any debts that you may not be aware about. Your loan guarantee for a friend from years ago may be sitting as an unpaid default against your name today. In most cases you would be well advised to repay any defaults before a loan application is made. In fact if you are planning to make a home purchase over the next couple of years, the sooner you check your credit report the better. If problems are found there will be plenty of time to correct these.

Close down unused credit cards

Many people have several credit cards and not all are necessarily used. If you have cards that are not used or cards you can do without, closing them before you make a mortgage application can significantly improve your loan affordability. A limit of $10,000 on a credit card can reduce your borrowing ability by up to $30,000.  This may mean that you are not able to afford the mortgage needed to purchase the home you have selected. Having a good deposit or a stable income, helps but will not get your application over the line when it comes to holders of multiple credit cards. Remember that lenders assess your application as if all your credit cards are drawn to the maximum, irrespective of the fact that they may be all paid out.

Pay down other debts

In additional to credit card debt, any debt that you may have in your name or even debt that you have guaranteed for someone else will reduce your borrowing capacity. This includes car loans, personal loans etc. The lower is your other debt, the larger will your maximum mortgage borrowing capacity be. Planning for a home purchase should include an effort to pay down all of the borrower’s existing debts.

Save a deposit

The larger the saved deposit the better. A larger deposit will reduce the risk of your loan application to the lender. Unfortunately a large income does not negate the need for a deposit. A deposit of at least 20% will not only help your qualify for a cheaper mortgage you should also be able to avoid mortgage insurance (which can cost low deposit home buyers thousands of dollars)

Do not change jobs

Lenders like to see employment stability. It is best not to change jobs if you are looking to make a home loan application in the immediate future. Moving from PAYG to self employed can put back your home loan purchase by at least a couple of years.

Maternity leave

Similarly, if you are considering starting a family, you are best to do so after a home purchase. Home loan applications made while one of the partners is on maternity leave or is visibly pregnant will cause the lender to assess your application on only one income. This is despite the mother having a secure job which is going to be available to her to return to after maternity leave.

Do take care however to make sure that you have sufficient income/savings to afford mortgage repayments during maternity leave.

Categories: Finance

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