What you need to know before getting a home loan
Thinking of home-ownership, if you’re like most people, you started by Googling all kinds of things…
Best interest rates, most awards won, or which bank do I like...
Except none of these factors are really that important when securing a home loan.
What most people think qualifies them for a home loan, isn't what actually matters.
Every month, thousands of people get knocked back on a home loan application. It can be highly frustrating and disappointing.
Why is that? Lending conditions have changed, and are changing still.
The ‘rules of thumb’ don’t work today as they may have for your parents, friends and colleagues. Every bank assesses everyone differently, based on a myriad of factors, from the type of job you have, to your home budget, even the property you’re buying.
Before you apply for a home loan or start shopping for a house, these are the things you need be aware of and work through…
Income
Your job type matters. Different industries are assessed by lenders to be low or high risk, in terms of long-term job security.
The type and length of your employment. eg. Most lenders put minimum lengths for Casual work. Large gaps in employment can also be of concern to lenders.
Self-employed, or running a business? Lenders will assess the state of your business and it’s liabilities. They will require financials to show profitability in your business. Typically 2 tax years.
Living Costs
The first thing lenders analyse is your income to savings rate. eg. If you have a high income and no savings. Renting is often considered as savings.
You need to be ready to declare and prove your living expenses are appropriate for the loan repayments. Lenders will stress test this in their modelling.
Make sure to include extra costs of running a house; such as rates, body corp. Even if you’re renting, lenders want these expenses factored in for the loan.
Current Debt
Current debt, such as credit cards and car loans greatly affect your serviceability and borrowing capacity.
Your HECS/Student Loans/HELP debt is counted as a debt.
Got an outstanding tax bill? Lenders will ask for proof that you have no outstanding tax owing (common for business owners).
Active buy-now pay-later apps/accounts. 0% interest shop cards. These will reduce your serviceability and borrowing capacity.
Business loans and liabilities also count if you are the director or owner.
Credit History
Every lender will run a credit check to get a timeline history of your credit actions. If you have old credit cards, they may ask you to provide a letter to prove these have been closed. Credit checks will pick up the following:
Do you use pay-later services?
Have you churned through credit cards?
Do you have current or previous car loans and personal loans?
You can check your personal credit score using these Free tools:
www.mycreditfile.com.au (Equifax)
Loan to Value Ratio (LVR)
The LVR percentage changes the criteria by which the lender assesses your loan.
If the LRV is above 80%, more measures will be taken to assess risk. You have much less control over loan products and what the lender will require to assess.
If you have a 95% LVR or use a no-deposit offer, you will have very little control over the loan options.
The higher the LVR, the less lenders and loan options you have, and the higher the standard interest rate will be to start with.
Security of the home
The type of home you are acquiring matters to the lender. A third-party property valuation will be done along with an assessment the following:
The suburb
Council zoning
The type of property (house, townhouse, kit home)
The land area
How you assess these factors (and more) will determine the mortgage products banks make available to you
There are thousands of mortgage products in Australia.
Depending all the criteria mentioned above, your loan options can vary from thousands of products down to just 1 or 2.
If you go directly to a single bank, your options may be none at all.
Like finding a matching paint shade, there are so many choices to getting finance…
But it’s likely that only a handful of products will best suit your home and situation.
A mortgage broker can help you find a suitable solution for your situation.
Getting a home loan isn't always quick or easy
Even if you've done your homework, there's still a lot of things to assess and put in place to ensure your loan will make it to approval.
This is why the typical home loan can anywhere between 1 week and 12 weeks.
The good news is, you don’t have to do this on your own.
Our team can help you work through your situation to achieve your goals with property.
Connect with our property team
Book a free call with our team and;
Discuss your goals
Ask any questions
Get an assessment of your situation
Waymaker is based in Queensland, servicing Australia-wide with our team of mortgage brokers and property experts.
Related episode:
