Prove that you can service the loan
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If you’ve never borrowed money before, don’t automatically think that you have a lesser chance of being approved for a home loan. The opposite may in fact be the case. A person who has never before borrowed money may be more likely to receive credit approval than someone who has borrowed money but has proven to be a bad credit risk.
Lenders need to be sure that you can make the regular required payments to service the loan. In order to ascertain whether or not you have the financial capacity to service the loan, they will consider your current income and living expenses.
They will also look at any other loans or debts that you have such as car loans, personal loans and credit card debt as these also have an impact on your overall financial wellbeing and can affect your ability to service the home loan.
Any assets of value that you hold in your name will also be taken into consideration, as these can be liquidated if you are unable to continue with your home loan repayments at any time, giving you an additional buffer against your home loan debt.
If your home loan repayments exceed a certain percentage of your monthly gross income, a lender may consider that you are unable to service the loan. However, if you are able to prove that you are already servicing a large debt or other significant expense, such as an existing mortgage (if you are taking out the loan to refinance an existing loan or to purchase an investment property), the lender may rule in your favour if you have proven to be financially sound.
A good lender should care about your personal welfare. As such, their key consideration is whether your income is sufficient to comfortably cover your living expenses as well as make your regular mortgage payments. So you need to show you’ll still able to cope with everyday and unexpected expenses after you’ve taken out your home loan.
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Illustrate a strong employment record
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When applying for a home loan, it’s important to be able to present yourself as a solid, reliable client, not a high risk candidate. As such, lenders will be keen to see proof that you have a strong employment record. If you’ve just moved into a new role, now may not be the best time to apply for a loan. As a guide, six months experience with your new employer could be seen as an acceptable time frame. However in all cases, the most important factor is strong industry experience. If you can prove you’ve been successfully employed in a particular industry for at least two years (even if you’ve had more than one employer), prospective lenders will most likely take this into consideration.
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Be able to prove your ability to save
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Your ability to service your home loan is a key consideration for lenders. People who can show that they are ‘savers’ and have a track record of regular savings and assets to their name will be viewed favourably by lenders as they are the type of people who are more likely to be able to adjust their lifestyle and financial patterns to the servicing of a home loan.
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Show a good credit history
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While it is true that the fundamental role of lenders is to ‘lend’ in a responsible manner, they must also minimise their exposure to risk and loss of revenue stream.
If you have a bad credit history then the alarm bells will start ringing and the red lights flashing, when the lender uncovers your bad credit history, which they will. This can only have a negative impact on your chance of success.
So, how can you get a poor credit history? If you have any unpaid loans, bills or fines, then you can end up with a black mark on your credit history file. Something as simple as an unpaid phone or electricity bill which you’d forgotten because you’d moved house, can have a disastrous impact on your financial fitness in the future.
Unfortunately, technology can also give people a bad credit history, because of incorrectly inputted details or a data error.
However, if, for whatever reason, you find that you have a bad credit history, it is imperative that you spend the time to clear your name and your bad credit record.
If you find that an unpaid or forgotten bill has caused the problem, make sure you diarise and pre-pay all bills in order to ensure no more details are noted on your credit file.
If you find that your bad credit history is the result of an administrative or technological error, identity fraud or something as simple as the fact that you have applied for a number of loans in a short period (which can trigger back-office warnings that you may be in financial difficulty), speak with the service provider in question or contact the credit reporting agency -Veda Advantage (www.vedaadvantage.com.au) and request their assistance.
If your credit history has been negatively impacted because of errors, it’s highly likely that it can be corrected in a short period of time. For instance, if you have an overdue notice on an account that has in fact been paid, you can contact the service provider, quote the payment reference number and request that they notify the credit reporting agency of the error.
If someone has stolen your identity and is using your details and finances to build up debt in your name, you should contact the Police and credit report agency immediately – they will guide you through what you need to do to and assist you in clearing your name.
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Remember – lenders WANT to lend you money!
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Lenders are in the business of lending money, after all, that’s how they make money themselves and stay in operation. While there are a number of things you need to consider and be able to ‘prove’ in order to illustrate that you are a viable, secure candidate for a loan, with some time and dedicated effort and provided that you have a relatively good credit history, you should be able to present a sound case for a home loan.
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Get yourself organised for your home loan application in a few easy steps…
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- Get rid of credit you don’t need – if you have a credit card that has a large limit that you don’t use, you can either reduce your credit limit or get rid of the card altogether. Remember, lenders view a credit card limit as being a full debt, ie a $7000 card limit is viewed as $7000 of debt, regardless of how much you have owing on the card. So, if you don’t need it, get rid of it.
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- Make sure your credit history is in the green – contact Veda Advantage or your various service providers (ie phone, electricity, water), to find out if you have any unresolved credit issues.
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- If your credit history is in the black, fix it – if you find out that you have a bad credit history, take the time to fix it.
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- Take time to save – remember – lenders like savers, so take the time to build up a solid savings record so that you can illustrate that you are a reliable, sound customer.
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Talk with a RAMS Consultant today to find out about the wide range of home loans we can offer – we’ll help you find a RAMS home loan solution that suits your needs, lifestyle and budget.
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