• Mark Sinclair

Getting Match Fit For A Home Loan

Updated: Nov 18, 2021

If you are planning to apply for a home loan then consider these tips for getting your finances "match fit" and ready for the application.  This will help you get access to a wider choice of lenders and be in a better position to borrow what you need at the lowest possible rate.

Getting your deposit in order Lenders like seeing clearly where your deposit sits and how long it has been in the "saving" mode.  A lot of questions and scrutiny arises when a deposit is made up of a whole lot of big transactions from external accounts at the last minute.  This is especially the case for high loan-to-value ratio loans. 

Having your deposit split over multiple accounts and in different places can cause a bit of a headache.  

So if you know you when you roughly expect to purchase a property then get your deposit sorted at least 4 months prior.  Get it all into one savings account and show that you have topped up your deposit over several months through extra savings.  

Reducing credit card limits A common misconception is that the lenders care only about the balance of your credit cards.  People often say "I pay off my card in full each month" and expect the lender to assume $0 debt.  

Unfortunately, lenders these days assume the worst and calculate the debt assuming you max your cards out the limit.  They assume you will pay 3% of the limit value of your cards each month, regardless of the current balance.  This can have an impact on your ability to borrow. 

​Reduce the limit of your cards to a usable limit before you apply for a home loan. Consider closing down any cards that you don't use.

Stop applying for credit If you have a habit of shopping around for credit card "new customer offers" then now is the time to park it.  Regularly changing credit card providers will put extra entries on your credit file and reduce your credit score.  If you know you have a home loan application coming up then cease applying for other forms of credit so that you can boost your credit score and reduce questions from lenders on your credit history.

Keep your employment stable Lenders like to see continuity of employment.  Many are not willing to lend to those that have just started a new job and are still in a probation period.  

So if you are looking to get a home loan then don't throw in your job with your current employer. Avoid contract roles where possible and stick with full time, PAYG employment if you can.  

If you earn commissions, then the lenders will be looking to see at least 6 months of commission earnings before they will consider including your commission component.  

Save as much deposit as possible Having a bigger deposit will potentially save you from higher lenders mortgage insurance (LMI) premiums (where your loan-to-value ratio is over 80%).  A bigger deposit could also give you access to better interest rates and may get you a loan where you otherwise may be unable.  Lenders will often offer discounted rates for loans that are under 70% loan-to-value ratios.

Cutting down on discretionary expenses Lenders are looking closely at your actual expenses, to the point where credit card and bank account statements are being scrutinised.  Consider cutting back on services that are nice-to-haves - such as streaming subscriptions, game subscriptions and food delivery.  Every little bit helps by reducing your "expense" declaration and allowing you to potentially borrow more.

Keep your existing loan repayments perfect Lenders will look at how you are going with making regular payments on your existing loans and credit cards. They want to see payments in full, every month. If you have late fees, missed payments or anything else on your current loan statements then you are likely to run into trouble. This is particularly true if you plan to refinance your existing loan - lenders will ask for 3-6 months of statements showing that you have made regular repayments before considering a refinance. If you are making loan repayments manually then switch over to a direct debit system so that they are done automatically and remove the chance that you will forget to make a payment. A single missed payment can cause a lot of grief for new lending.

#homeloan #matchfit

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