When applying for a home loan, your income and expenditure, as well as your assets and debts, all play a role. So does your saving and credit history. Here’s how to improve your chances of approval.
Many of us like to think we’re good savers, but the reality is, when it comes time to apply for a home loan, lenders will look for evidence of a healthy savings record.
That means that if you live week to week, it might be time to open a savings account and start growing a nest egg. Having a sound record of being able to save (even small regular amounts) gives lenders confidence you’ll be able to meet your regular repayments over the life of the loan. You are demonstrating that you’re able to afford your commitments without a significant down-grade in your lifestyle.
Even if you’ve already got a substantial deposit saved, or are planning on getting a bit of help from mum and dad, having proof of your savings prowess goes a long way. Open an account and give it a name like “Nest fund” to keep yourself motivated, and start making regular contributions. A great tip is to set up a scheduled payment in online banking each pay period, to avoid temptation.
Getting help from mum and dad?
Another thing that will make a lender smile when you’re applying for a home loan is being able to show that you’re able to set up and stick to a regular budget. Again, this gives lenders confidence that you’ll be able to prioritise when it comes to your money, and are good at meeting your commitments. Find out how to set up your own personal budget below.
Don’t be too hard on yourself. Leave yourself money for living, or you’ll be tempted to go off-road. Try and be as comprehensive as you can, taking into account all the little things that can sometimes be forgotten. Think maintenance, think irregular and big once-yearly payments, and account for emergencies.
OK, leaving yourself some money to live on doesn’t mean that adding a budget line item for monthly shopping blow-outs! Check in with your budget regularly to see how you’re tracking, and be honest – you’re working towards a hard-earned, and worthy goal, here!
Look, life happens. We get it. Lenders will get it. However, if you encounter the unexpected, it won’t do if you have to abandon your budget completely to cope. Budgeting a small amount each pay period for a rainy-day, or emergency fund is always a good idea.
OK, so you should also consider your history with credit to give yourself the best chance of securing a home loan.
If you’re swimming in debt, credit card and otherwise, it may help to consider a single loan to consolidate all your debts. This way, you’ll only be paying one repayment, with one interest rate (often lower) and one set of fees, each month. You’ll be able to really focus on reducing your debt, and if you can eliminate your debt altogether, so much the better.
Something worth knowing – lenders take into account the credit limits on your cards, even though they’re not technically debt. This is because lenders are trying to establish your total potential ‘risk’ exposure. If you’re thinking of applying for a loan, you may want to consider reducing your limits, or cutting down on the amount of credit cards you have.