Money can sometimes be an uncomfortable subject. When you’re approaching a mortgage broker about a home loan, it pays to know what lenders look for in advance. Not only can it increase your understanding of how the whole process works, but it can put you in the best possible position to obtain the loan. Given a home will be one of the largest financial commitments you’re likely to take on, you want to give yourself as much of a chance as possible of securing one.
With lenders across the country tightening their bootstraps when it comes to providing a mortgage, you’re going to face a wide range of criteria. Lenders are on the look out for borrowers who are not only low risk, but reliable. But how can you prove you fit this mould? Here are some simple tips for making you appear as attractive as possible to your future lender.
1. Improve your credit history
The first step towards your home ownership future is to tidy up the past – or at least make it look as clean as you can. Your credit history is typically the first port of call for lenders looking to determine your suitability. They’ll be able to access this information through your credit report, which offers a detailed breakdown of your financial activities. It outlines the extent of your credit, how much you have used and whether or not you have been consistent in repaying it. It will also feature bill payments and previous loan applications – in essence, all of your financial laundry will be on full display.
A clean credit history will improve your chances of obtaining a loan, but if you have a missed payment or overdrawn account here and there, you should make an effort to remedy it. Be aware that repaying overdue debt will not eliminate the entry from your report all together – it will remain on the report for around five years, after which it can be removed. This makes it incredibly important to pay your debts promptly.
2. Prove your good saving habits
According to the Australian Securities and Investments Commission, 43 per cent of Australians are non-savers. But for your home loan application to be successful, you’ll need to prove that you’ve got what it takes to pay back the mortgage over time. With help from your mortgage broker, you should determine how much money you can afford to borrow. A mortgage with a high loan-to-value ratio will garner a lot more scrutiny of your finances – and if there are any factors that could undermine your ability to pay it back, the lender will be a lot less willing to offer the money.
If you do require a loan with a high LVR, such as 85 per cent or more, many lenders require the deposit to be paid from genuine savings. This is money that you have built up over a period of time – normally three months – so it’s worth starting your savings plan early. The more substantial your backstop is, the more confident a lender will be in your application.
Buying a home is sizeable commitment. To make yourself as appealing as possible, consider getting professional financial advice.
