On the surface it can seem as though applying for a home loan should be a simple process. You show the bank your pay slips, they figure out how much you can borrow, and you go out house-hunting. Right?
In reality, there are multiple steps that occur behind the scenes that turn your simple application into quite a complicated process. Australian law requires your lender to only lend money responsibly. They have an obligation to ensure that you are able to afford your repayments and are likely to be disciplined enough to keep up with your financial obligations.
In order to determine your credit-worthiness, lenders perform a range of thorough background checks on you as part of their qualification process.
Before you head into your local branch to ask for a home loan, take a moment to consider some of the things that could impact your mortgage application.
All lenders need to verify that your current income will be sufficient to allow you to meet your financial obligations. As a rule, most lenders will ask you to provide copies of your latest pay slips and your most recent tax assessment notice or group certificate (PAYG certificate).
If you’re self-employed, you may be asked to provide your last 2 years individual and business tax returns, as well as providing Business Activity Statements (BAS) if your financial documents are already becoming dated.
Lenders want to know about your employment history, as it could be a reflection on your capacity to earn income. If you’ve had the same job for a few years, or if you’ve moved jobs but stayed in the same industry, the banks may view this information favourably.
However, if you’ve been in your current job only a few months or you have a history of hopping between different jobs in a range of industries, this could have an impact on your application.
Providing your lender with evidence of your savings history can play a big part in the success of your home loan application. Not only does your income allow you to pay for your living expenses, but being diligent enough to put cash into savings means you’re also disciplined with your money.
Credit assessors view customers who are able to save money regularly as being more likely to be financially responsible when it comes to keeping up with mortgage repayments over the long term.
Loan repayment history
If you haven’t had a home loan before, lenders may want to assess how well you kept up with any other loan repayments. If you’ve had a personal loan or car loan, showing that you were financially responsible about making all your repayments on time can have a positive effect on your home loan application.
When you apply for any type of credit, lenders run a check on your credit report. The information on your credit report tells the bank much about your borrowing history and your repayment history.
Your credit report shows the bank any types of credit you’ve applied for in the last five years. They can see whether you applied for car loans, credit cards, store cards, and other types of credit.
Your credit report also contains a credit score, which ranges anywhere between 0 and 1,200, depending on the credit reporting agency used to calculate your score. Credit scores are broken down into categories. These are:
0 – 509 – Below average
510 – 621 – Average
622 – 725 – Good
726 – 832 – Very Good
833 – 1200 – Excellent
Your overall score is calculated based on a range of factors, including:
- Your age
- Your address
- The amount of credit you’ve borrowed
- The number of credit applications you’ve made
- Any unpaid or overdue loan payments
- Any debt agreements or insolvency agreements you’ve entered into with creditors
A low credit score could prevent you from borrowing money. By comparison, if your credit score is very good or excellent, you’re more likely to get your home loan application approved. The average Australian credit score is around 770.
Submitting through a mortgage broker
When you walk into your local bank branch, you only have that bank’s home loan products to choose from. You’re also limited to working with that bank’s individual lending policies, which may not be right for your financial situation.
By comparison, when you apply for a home loan through a mortgage broker, you have access to a broad variety of different mortgage products and lending policies. Your finance consultant is able to narrow down the right options to help maximise your chances of getting your home loan approved. Call an Assured consultant today and let us work with you to get the right home loan at competitive rates to suit your needs.
This article provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such as it does not take into account your personal circumstances or needs. Professional advice should be sought prior to any action being taken in reliance on any of the information.