Since the Global Financial Crisis of 2008 occurred, banks have changed their lending practices and the requirements to secure a home loan have become more stringent. Using the services of a mortgage broker can help smooth the way into home ownership as they have solid working relationships with multiple financial institutions and knowledge of numerous loan products that are available.
A reputable broker will have worked within the finance sector, and will therefore have a sophisticated understanding of how home loans in Sydney and the entire industry operates. This experience translates into intimate knowledge regarding documentation, credit history and savings, as well as the types of financial data and patterns lending institutions value most when it comes to approving loan applications.
A consultation with a mortgage broker can be seen as a financial health check that highlights potential difficulties and suggests helpful corrective measures to enact before making a formal loan application. Applying for a loan without knowing exactly what lenders prefer can lead to the loan application being rejected.
The following four tips can help to greatly increase the likelihood of having your home loan application approved.
1. Pay all bills on Time
Most people don’t realise that paying service and utility bills on time, such as phone, electricity, water, rates and rents demonstrates a pattern of reliable and responsible behaviour that financial institutions favour. If these accounts are paid late or have needed intervention by a collection agency to resolve, lenders will look unfavourably upon your application.
2. Employment History
Financial institutions look very closely at the employment history of all loan applicants. They are interested in your capacity to earn and traits of stability and consistency. Generally it is best to have worked for the same employer for at least two years. If self-employed, two to three years of tax returns are needed to provide evidence of sufficient income. If your annual earnings vary significantly over the last few years, the calculations will be based upon the lesser amount rather than the highest.
3. Credit History
Poor credit history is the number one reason that mortgage applications are declined. Loan defaults, late payments, unpaid credit cards or even evidence of multiple applications for credit cards and personal loans can all paint a risky picture to a potential lender. Whether fair or not, such a history demonstrates a financial track record and if credit has been unpaid in the past, the assumption is made that it will probably be unpaid again in the future.
Clearing such debts before applying for a loan or waiting five years until one’s prior credit history has been cleared can help increase the chances of a successful loan application. It is also worth checking one’s own credit history to be certain that there are no disputed debts on file and resolving the dispute with the company responsible for lodging the default claim.
4. Adequate Savings
Most lending institutions now require a deposit of 5% – 10% in order to secure a loan. Most borrowers don’t realise the importance that savings have in demonstrating one’s capacity to service the loan. A deposit that borrowed from family and friends and then repaid after the loan is secured doesn’t really help either. There needs to be evidence of historic earnings and a gradual accumulation of savings over 12-24 months duration. The best advice is to begin saving well in advance of needing a loan to help boost one’s chances of success when applying.
Keeping these suggestions in mind will help prepare one for the loan application process and increase the likelihood of a positive outcome rather than suffering a disappointing rejection.