Need help filling out your home loan app? Weve listed the top 13 things that could potentially damage your home loan application.
Take a look at what could be unlucky:
1. Large credit card limits: Credit cards can greatly affect your serviceability and the more credit cards you have and the larger the limit, the more damage it can do. Even if you have $0 owing on the cards, the lender will still assess your application using the credit card limits. Therefore, if you have a large credit card debt, the best thing you can do is pay off as much owing as you can, reduce the limit and if you have cards that you are not using, cancel them.
2. Large personal debt: The more financial commitments and personal debt you have, the greater impact it will have on your application. Personal loans are known for having high interest rates, so it is in your best interest to try and reduce any debt as much as possible. Other ongoing commitments such as phone contracts and gym memberships could also impact the cash available to make home loan repayments.
3. Changing jobs: Starting a new job in a different position or a different industry could create problems. You may find that some lenders will be cautious when using your income if you are on a probationary period. If you are looking to purchase a property in the near future, it is best to stay in your current job until your loan has been finalised.
4. Going part time or becoming a contractor: If you decide to work less hours, the lender may have to reassess you on that income. If you decide to become a contractor, you may be assessed as being self-employed and need two years tax returns to show how much you earn after expenses. So even if you are earning more money by being a contractor, it may not have the effect you want when it comes to a home loan.
5. Unpaid maternity leave: You may not realise that lenders will be unable to use any part of your salary if you are not going to be paid for a few months during maternity leave. If you are planning maternity leave, you need to show that you are going to be receiving income for the whole time that you are away, not just part of the time.
6. Interest free deals: Even if you are planning to pay off the purchase before the expiry date, lenders will still treat this just like any other debt. Once you have paid it out, be sure to close the facility as while ever it is still open, it is still a debt in the eyes of lenders.
7. Shopping around for loan options: Although it is important compare lenders, if you submit applications to several different lenders at once, these will appear on your credit report. Lenders don’t know if this enquiry resulted in you taking the loan, changing your mind or being declined. Lots of credit enquiries will result in the lender being more cautious.
8. Going overseas: Going overseas during the purchase and settlement period could be problematic. During this time you may need to deal with lenders, real estate agents and solicitors and if the purchase is delayed, you could be faced with some expensive penalty interest expenses if no one is able to contact you to resolve the issue.
9. No savings: If you are a first home buyer, you will need to show that you can save for a deposit. If you already have a property, you can use the proceeds from sale or equity for a deposit, but if you are able to show that you can genuinely save money, it will improve your chances of getting a competitive home loan.
10. Bad repayment history: In March 2014, changes to the Privacy Act will mean that lenders can see the past 24 months of your repayment history. So, if you have been late or missed repayments on any of your debts in the past, it will affect you home loan application. However, it is never too late to make a change. If you can start being diligent with your repayments from now on, it will show the lender that you are making an effort to change your habits.
11. Not disclosing all information: It is important that you disclose all relevant information in the beginning. If you don’t, it is more than likely that the lender will uncover credit cards, other debts or issues during the process and it may put you in a bad position due to non-disclosure. Understandably, there may be certain things you have forgotten about, so before speaking with your lender, make a list of all of your financial information and commitments to ensure you don’t forget anything.
12. Choosing a ‘risky’ property: There are certain types of properties lenders consider riskier than others which could result in your application being declined or certain provisions being put in place, such as higher interest rates. Make sure you speak with your lender about your property to ensure it is suitable.
13. Not getting pre-approved for a home loan: Many home buyers have made the mistake of making an offer on a property without getting their finances pre-approved. They then find out they cannot afford the property or it takes too long to get finance approved and by then their dream home has been snapped up by someone else who had their finances in order and could exchange contracts quicker. Therefore, if you are planning to go house hunting, make sure you have organised a pre-approval beforehand so you know what your limits are.