When applying for a home loan, knowing what lenders are looking for can dramatically increase your chances of being approved. Note that these are not rules, just guidelines… and there can be ways to work around each of these points should you think that you may have problems in those areas!
Deposit
To qualify for most home loans you must be able to provide a deposit. On average you will need a minimum of a 5% deposit, providing you are eligible for the First Home Owners Grant. Ideally you would be able to demonstrate this via a genuine savings history. Generally 10% is expected for investment property finance.
Family Guarantee
If you do not have a deposit, but you have a close family member who is prepared to offer their own home as security for your loan, then some banks may consider lending for your full purchase price plus costs. Note however that you must be able to pay back the loan without reliance on the income of the family member.
Other costs
In addition to the deposit, a home buyer will also need to be able to cover the other costs involved in purchasing a property, such as lenders’ mortgage insurance, government stamp duties and conveyancing fees. For the loan to proceed, the insurer will need to approve the application and be willing to provide the lender with insurance.
More about Lenders Mortgage Insurance
Lenders Mortgage Insurance (LMI) is applicable on most loans that are for more than 80% of the property value. (Family Guarantee loans do not fall under this category). The lender insures the loan against the risk of defaulted repayments forcing sale of the property. If there is not enough money from the sale of the property to cover the loan then the insurance covers the shortfall. Note that this premium does not protect you, it only protects the bank as you will then be liable to the insurer for any costs they incur. There are some lenders that will offer an alternative to Lenders Mortgage Insurance if you meet certain criteria.
Employment History
Your employment history will be considered when applying for a home loan. Casual, temporary or probational positions or a volatile work history may affect the outcome of your application. Maybe you work on contract or are self employed? Ideally, if you can demonstrate consistent employment in your same field of work for at least 2 years then the banks will love you. Otherwise, they look to see that you have been in your current job or industry for at least 6 months.
Residential History
Again, lenders like to see stability in your residential history as well. If you have had to change addresses frequently, then discuss this with your lender or mortgage broker as often a reasonable explanation will help to mitigate this issue.
The Property
Most lenders will ask for a property valuation. The type of property, its condition and location may have to be assessed for your application. Sales in the area may also be considered. The lender will organise this via their own panel of valuers.
Credit Reference
The lender will conduct a credit check with a credit bureau such as Veda. Your credit history covers the last five years and shows any defaults, substantially late payments, outstanding debts and bankruptcy. This plays a major part in lenders deciding on the approval of the loan. If you have any concerns with regards to your credit history it would be best to request a copy of your report before applying for finance. You can then discuss this with your bank or finance broker prior to lodging an application.
You can access a copy of your credit file at:
http://www.mycreditfile.com.au
Note that if you scroll down the page you will have an option to get your credit file for free. You only pay if you want express delivery (though the providers do not make this obvious).
Please dont hesitate to contact us if you have any questions regarding any of these points. We would be very happy to assist!
