First time mortgage borrowers are tiring of being told that these are the cheapest interest rates they’ll ever see. More important is how to ensure you get a loan. Here are my top tips:
Have a clear goal: Use online calculators to see what you need to save and how much the repayments will be.
Have a budget and a plan: you need a deposit and to reduce your weekly outgoings. You need to do this for at least six months.
Save a deposit: bigger is better.
Show consistent savings: lenders want to see evidence of good financial management, rather than windfalls. Use a separate savings account to make regular deposits and few withdraws.
Have stable and consistent income: lenders are generally less comfortable lending to someone who has had numerous jobs or long gaps between employment.
If you do change jobs, stay in the same field and show increased income. Apply for your mortgage before changing employers or starting a business.
Understand your budget: lenders will want to know your gross income, and your financial and living expenses to gauge your disposable income.
Know that most lenders credit-score you to get an idea of how much risk you pose. So you must minimise credit enquiries, job changes and changes of address. Next year Australia gets a credit reporting system where creditors disclose late payments, not just defaults.
Have a stable rental history and minimise moving houses or apartments.
Lower your limits on credit cards: every $1 of credit card limit stops you borrowing up to $5 of home loan. Reduce credit cards to one, and reduce that card’s limit to what you use. Pay-off and cancel the credit card if you can.
Stop applying for credit/store cards: it suggests you live outside your means.
Don’t take ‘interest free period’ store finance.
Ensure your bank accounts are in order. No late payments, over-limits, or overdraws. Lenders generally check or require account statements for the last three to six months when assessing your loan application.
Know your credit report: most lenders credit-score you on the Veda system which shows your current and past credit activity. You can buy your Veda credit file at www.mycreditfile.com.au.
If you’re self-employed, get your taxes done before applying and make sure there’s no tax owing on your ATO account.
Reduce overheads: fancy car leases, big smart phone plans and cable TV charges can reduce your net income and affect your serviceability.
Move in with mum and dad if you can, but only if you’re going to save!
Talk to a broker: if you’re worried about your credit score and serviceability, a broker can get you prepared pre-application.
Don’t apply for too many mortgages. This affects your credit scoring.
Don’t lie to lenders, especially about other loans or credit cards.
The basics always apply to mortgages. You need a deposit big enough to have 20% equity, and cover stamp duty and conveyancing. And you need to show you can service the loan. This is a 25-year debt, so take your time and get your preparation right.
Mark Bouris is executive chairman of Yellow Brick Road, a financial services company offering home loans, financial planning, accounting and tax, and insurance.
Reproduced in full with permission: Property Observer The 20 tips to ensure you get your loan 11 November 2013
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