Eight Things That Make It Easier To Get A Home-Loan
22nd Nov 2018
It’s harder to get a loan today than it has been in the last 16 years, according to finance and property expert, Ayda Shabanz.
With banks tightening up on who they lend to thanks to the banking Royal Commission and Australia’s staggering level of household debt, here are a few things Australians can do to help them get their loans across the line.
1. Pay your bills on time
“We lead busy lives and our time poor nature makes it very easy to forget to pay a bill. I’m not judging, after all I’m guilty of this too. But if you’re applying for a loan soon, it’s really important to be on top of all of your bills, especially repayments to credit cards and other existing loans,” Shabanz said.
That’s because lenders have to check your credit history.
“Let me make it crystal clear – moving forward, banks will be extremely hesitant to extend a loan or credit if you can’t pay your current cards on time.
2. Think about your Afterpay account
As Shabanz noted, Zip Pay and Afterpay are actually considered credit and each time you apply for Afterpay or Zip Pay you’re effectively getting a loan. This is recorded on your credit file.
“This is viewed unfavourably by banks, because it implies that you’re already struggling to afford your lifestyle. What’s the best way to avoid this? Just like the saying goes, don’t spend what you don’t have.”
3. Don’t be a silly spender
The way lenders see it, if you spend everything you earn, there’s no way you’d be able to pay off a loan.
“Upon any loan application being received, it is likely you will be asked to list your expenses. Please note, this isn’t something you can just make up as the lender assessing you will check your day-to-day account over the past six months to make sure your story checks out. That’s why it’s super important to have a budget that you stick to.”
It really is a no-brainer. You should be saving the same amount in a separate account each pay day to show you’re able to manage your money.
Banks will generally want to see a savings pattern of at least six months, but this could be longer.
Shabanz recommended those looking for a loan approval try to save at least 10 per cent of their wages, however noted that realistically, savers will need to try to save more than that.
“Truthfully speaking, if you’re buying your first property and ultimately want to live there you should be able to save the difference between how much you would pay in rent and how much the normal mortgage repayment will cost you,” Shabanz said.
“If you can’t do that then you need to adjust a few things to afford to live in (or purchase) the property you are aiming for, such as reducing your expenses or lowering your price point expectations for the property. Lenders are looking for proof that you can afford the loan comfortably, regardless of what you earn.”
5. Get to know your credit file
The real benefit of being across your credit file is that you can get a look at how the bank will assess you and preempt any assumptions they might make.
It will also help you understand the way every application appears on your credit and highlight any outstanding loans and defaults.
If a default or loan comes as a surprise to you during the application process, there’s a good chance you will be automatically declined.
6. Stable job and home
“Banks want to be sure that you’re stable,” Shabanz said, adding that your employment history and proof of how long you’ve lived at your current address are good ways to show this stability.
“To help the chances of your loan application being processed, lenders will look favourably upon those who have maintained the same residential address for two years plus. In addition, it helps (but isn’t a defining factor) to have been in the same job for 12 months or longer.
“However, if you’ve just got a new job in the same industry that you’ve been in for several years which pays more money, this won’t affect you provided that your probation period is over.”
7. Pay off your loans
It’s fairly obvious but absolutely critical; banks want you to pay them back. So, if you have paid off loans faster than is needed, this will make you more attractive.
“Make sure that, at the very least, you always pay on time and you don’t miss any payments throughout the entire term of any loan that you have.”
8. Cut out any unnecessary debt
If you can, don’t be in debt.
Avoiding debt strengthens your borrowing power, Shabanz said.
Additionally, banks will often provide credit cards with limits higher than you need. Even if you don’t hit the limit, home-loan lenders will assess you based on the limit you have, not your actual spending.
“This can affect your borrowing capacity. Therefore, be sure to reduce any credit card limit down to what you realistically need and pay it off quickly.”