How to know if you are home loan ready?
So you want to buy your first or even second home…but not sure if you are Home Loan ready?
Here are 8 “Must HAVES” in place to ensure you are home loan ready before applying for a home loan.
STEP 1: Your Income
- If you’re looking at changing your job, DON’T until you have been approved for the loan and setted on your new home.
- If you are on probation, you will need to wait until you’re off probation before a lender will consider you for a home loan. There are exceptions to this and will depend on your current employment and work history.
- Ensure your payslip represents the income you are earning, including the year to date figure, as lenders will look at this figure to calculate your annual income.
- If you are self-employed or looking at setting up a business, lenders will require 2 x years financial history plus 2 x years tax returns to verify your income. There are exceptions to this, if you have started a busines and going doing the same work as when you were a PAYG employee, reach out and I can explore lending options.
STEP 2: Your Deposit
- Have you saved up a minimum 10% deposit, or have you saved up more?
- Or are you looking to use the equity in another property to fund the next purchase?
➤ This can be done if your property is worth more than the outstanding debt owing.
➤ A quick and easy way to check this is to obtain a valuation on your home.
➤ As a mortgage broker, I have access to free valuations, so I am able to assist you with this.
- You will require generally a minimum 10% – 20% to be able to afford getting into your own home as there are costs associated with purchasing your home for eg; govt costs as stamp duty, property registration costs, possible lenders application fees and settlement costs. However, there are exceptions to getting into your own home with as little as a 5% deposit, reach out so I can expand and explore you own personal circumstances.
- Does your bank account statement demonstrate to the lender that you have savings? As they check over a minimum 3 x months bank statements to show genuine savings?
➤ One option a lender will look at if you haven’t been able to save the full deposit is paying rent and having a lease agreement in place. Some lenders consider this, as it can show you are able to meet your regular liabilities on time, which is what they are looking at when looking to loan you money.
➤ Another option is that if you haven’t been able to save up the minimum deposit required, gifting is acceptable with the majority of lenders. Gifting is where a family member provides a cash amount to assist with obtaining a home loan and does not expect this to be paid back. Lenders will require a stat dec (statutory declaration) signed by the person giving the amount to verify this is a gift and not a loan.
STEP 3: Check Your Credit Report
- You will want to look over your credit file to ensure there are no nasty surprises, and when it comes time to assesing your loan, if your score is low or there have been any missed payments on any bills or liabilities, they will pick up on this and may stop your chances of obtaining the loan.
- Checking your credit report is easy and free to download from one of the credit check companies online.
- Or alternatively, you can request a copy of your credit report from me and I will look over it for you to ensure your chances of getting your loan are not decreased.
- At the end of the day, lenders are looking for good credit conduct and seeing before they decide to loan you the money that you are able to pay your bills and other commitments on time.
A low credit score or any missed payments on any bills or liabilities may stop your chances of obtaining the loan.
STEP 4: Bank Statements
- The majority of lenders will look through your bank statements line by line to see how you manage your money.
- They are looking to see your spending habits as to whether there is money left at the end of your pay period and verifying whether there is more going out than staying in your bank account.
- They will require the last 3 months of statements, so make sure they look clean and have no surprises for a lender who will question why something doesn’t appear to look like a normal transaction on the statement.
STEP 5: Identification Verification (ID)
- Lenders will require a minimum 2 x pieces of identification to verify who you are, and the ID will be in the form of:
➤ A current Drivers License
➤ A Current Passport and/or
➤ Birth Certificate, and
i. Any visas, if not an Australian Citizen or Resident
STEP 6: Your Borrowing Potential
- Your borrowing potential looks at whether you can actually afford to purchase the new property and this is where your deposit comes into the equation.;
- It looks at the purchase price of what you are looking to buy, plus the costs to purchase and get into the property, less your deposit, which equals the actual percentage of how much you’re looking to borrow.
➤ Where you are borrowing less than <80% from a lender, you will not incur lender mortgage insurance, or LMI, as it’s known.
i. LMI is the lender’s insurance policy in case something occurs during the term of the loan and protects the lender’s investment in loaning you the money.
ii. There is an additional cost added to the loan when in LMI territory, ie; borrowing more than 80%
➤ If your borrowing potential is higher than 90% and even up to 95% then this may limit the lender’s choices available to you, as some lenders do not loan above 90% – 95% (including LMI), while others put a premium on their interest rate for loaning above 95%➤ So if you are considering a loan, it is best to save as much as you can to access a lower interest rate and lower costs of getting your loan.
STEP 7: Your Affordability
- At the end of the day, are you applying for a home loan that you can really afford?
- Lenders take careful consideration when you apply for a home loan to ensure you are not going to go into mortgage stress
- When a lender considers you for a home loan, they factor in higher interest rates and higher monthly ongoing living expenses, as during the loan term interest rates may rise and the ongoing costs to live increase throughout the years.
STEP 8: Consult With a Specialist Mortgage Broker
- As a Mortgage Broker, it’s my job to assist you in successfully being eligible for a home loan.
- I have the tools and resources to work out if you are home loan ready, and;
- It’s my job to ensure it goes as smoothly as possible so that, at the end of the day, you get your home loan.
Are you home loan ready?
Buying your first home is a BIG and important step in your life. Learn 8 essential must-haves in this guide that will help you in becoming home loan-ready before applying for a home loan. Get your free copy today!
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent
