When we apply for a home loan, our lender of choice will factor into their system numerous things in order to determine the risk of giving you the home loan. There is no guaranteed formula to get your loan approved, but there are some things you can do to strengthen your position before applying.
One thing to be mindful of in the lead-up to an application is your current and previous conduct on your transaction bank accounts and liabilities. Things that can negatively affect your position include:
- Going over your approved Credit Card Limit.
- Making late payments on any Credit Cards or existing loans.
- Over-drawing your transaction account or having insufficient funds to cover a regular direct debit.
Lenders will generally look at your existing account and liability statements for the last 3-6 months as part of the process so it’s very important to be vigilant with your financial conduct.
While many people pay off their Credit Cards every month, lenders factor in your credit card limit/s (not the balance owing). It is best to minimize Credit Card limits where possible; also, Credit Cards that are never used should be closed prior to your loan application.
Whilst not always necessary, genuine savings always reflects positively. The best way to ensure you will have genuine savings, is to put 5% of the purchase price in a separate bank account and leave it there for a minimum of 3 months – don’t let it drop below 5%!
For PAYG employees: casual employees are required to be in their position for 3 months (12 months with some lenders). Full/part-time employees can get their loan approved with certain lenders with having just their very first pay slip; however, Banks are looking for stability and continuity in the same industry. Having many previous employers is fine but it’s always good to remain within the same industry.
The absolute minimum length of time for someone that is self-employed is 6 months; however, 1 – 2 years is required with the vast majority of lenders. When applying for a home loan, it is really important to have all your financial documents up-to-date and readily available i.e. Tax Returns, ATO Notices of Assessment, profit and loss statement/s and balance sheet/s (all prepared by an accountant or registered tax agent).
Your national credit file history is always obtained by a lender for review with your home loan application; if you are not sure what your credit file has on it, you can order a free one through VEDA.com.au or even talk to us and we’ll obtain it for you and then review with you prior to loan application.