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When you’re buying property in this market you need to move fast.
Days on market are short at the moment (although they are starting to stretch).
Property prices are still rising, although the pace is slowing, and if you’re sifting through the available properties when you find The One you need to be ready to pounce.
According to research from 2017, 18 per cent of Australians have been turned down for a home loan, and almost one in 10 have been rejected by a big four bank.
Since then, the market has moved and banks are getting more twitchy about lending to risky borrowers.
In other words, it’s getting harder to get a loan and the constant regulatory environment (from APRA and Co) keeps changing to keep the lending markets in check.
So, getting all your ducks in a row is important if you want to have your finance approved the first time.
In a rocketing market, there’s no time to waste so here are our top 10 tips for getting that all-important pre-approval first go.
Make sure your credit report is squeaky clean.
This is probably the most important one of all.
Your credit report is one of the most heavily weighted factors in the loan application process. In this climate, as banks become more cautious about lending to customers who may not be able to service the loan if rates rise (which they will), even a whiff of risk on your credit report will result in a denial.
If you are applying for a home loan one of the best ways to prove to your lender that you are a reliable, low risk is to have a sizeable deposit.
This will also have the benefit of eliminating the need for Lenders Mortgage Insurance (LMI) which can add tens of thousands of dollars to the cost of the loan.
Reduce or eliminate consumer debt
Until recently, a myth perpetuated that having a credit card and managing it responsibly was good for your credit report.
This is a furphy.
The best way to demonstrate to your lender that you are responsible with money (and therefore a good risk to lend to) is to show that you can live without credit.
There is no better way to prove to your lender that you are a safe bet for a home loan than showing them years’ worth of solid savings records.
A history of consistent, effective money management is a clear signal that you will take on debt seriously and manage it properly.
Borrow only what you can afford
This one can be the hardest of all because when you start looking for a home, it’s natural to start looking at slightly more expensive homes every time you go to the search engine.
Your budget gets a little bigger every time, just by $5,000 or $10,000.
Then before you know it, you’re looking at homes $100,000 more than you can afford.
Talk to an expert and get an accurate understanding of what you can actually afford.
Choose the right lender
Get advice from an expert and choose a lender that is more likely to grant your application.
Some tend to have tighter restrictions, while others can be a little more flexible in their assessment criteria.
One of the easiest, but often overlooked, ways to make the loan application go smoothly – get all the details right!
Make sure you have all your documentation completed and ready.
Everything that needs to be witnessed, signed in triplicate, submitted with supporting documents – get it all organised and check every form before you give them to your bank.
Make it as easy as possible for the human on the other end of the mortgage process to say ‘yes’ to your request for them to give you many hundreds of thousands of dollars.
One loan at a time
Nothing sends a red flag up on your credit report faster than multiple applications for credit (see Point 1 about having your credit report in perfect shape).
Your bank is looking for indications that you are either a risk or a safe bet.
Consistent employment for extended periods is a good way to show that your income is reliable and therefore you’ll be able to make your repayments.
Ask for help
There are experts out there who can help you get all your ducks in a row when it comes to applying for finance.
These experts can be particularly helpful if one of the previous 9 points on this list (see above) is problematic for you.
They’ll be able to advise on how to improve your chances and whether you should wait before submitting an application.