Yes, it’s an old cliché, but, buying a home is one of the biggest financial decisions most people will ever make, and getting your loan application rejected can be very disappointing and a major setback, especially in a market rising so quickly. In today’s competitive lending environment, lenders have become increasingly stringent in their approval criteria. However, with the right preparation and guidance, you can significantly increase your chances of getting your home loan approved on the first time.
A few points to remember:
Get Your Credit Score in Shape
Your credit score is one of the most critical factors lenders consider when assessing your loan application. A poor credit score can raise red flags and potentially lead to rejection or less favourable loan terms. Before applying for a home loan, obtain a free copy of your credit report from a reputable credit reporting agency and review it thoroughly. The team at Brisbane Home Loans will be happy to do this for you as our client, and it will be soft touch and leave no mark. It’s one of the very first things we do for you, so you know where you stand.
Look for any errors or discrepancies and dispute them immediately. Pay off any outstanding debts or delinquent accounts, as these can negatively impact your credit score. Additionally, avoid applying for new credit or making significant purchases that could increase your debt-to-income ratio in the months leading up to your loan application. (Note, lenders count the limit on your credit card, not the amount owing, when calculating your borrowing capacity)
Demonstrate Stable Employment and Income
Lenders want to see a consistent and reliable income stream to ensure you can comfortably make your mortgage repayments. If you’re employed, gather recent payslips, most recent income statement, notice of assessment from the ATO, and employment contracts to demonstrate your employment history and income stability.
If you’re self-employed or have variable income, be prepared to provide additional documentation, such as business financial statements and tax returns for the most recent two years. (Note, many lenders frown on old tax debt that has not been kept up-to-date. Bring it to our attention immediately you speak with us if it is an issue so that we can take that into account, when researching lenders).
Many lenders require borrowers to have been in their current job for at least 6 months, though some may accept less for professionals or those in the same industry. They look for that steady income stream and some will want to see you’ve passed any probationary periods.
For the self-employed, lenders typically want 2 years of consistent self-employment income verified through tax returns and profit/loss statements before taking you on. There are a couple of lenders who will give consideration over 12 months.
Save for a Larger Deposit
While it’s possible to secure a home loan with a smaller deposit, a larger deposit can significantly improve your chances of approval. If you are a first home buyer, and qualify for the First Home Guarantee scheme, you will still need a minimum of 5% deposit plus costs such as stamp duty, conveyancing, applicable fees and building and pest.
If you do not qualify for the First Home Guarantee, aim to save as much as you can for your deposit This not only increases your chances of approval but also helps you reduce the amount you will pay in Lenders Mortgage Insurance (LMI), which can add thousands of dollars to your upfront costs.
For more information about the First Home Guarantee go to the Housing Australia website here for more information. This site will explain the several different Federal schemes available to help people in to their own home. https://www.housingaustralia.gov.au/
Minimize Your Debts and Living Expenses
Lenders will scrutinize your debt-to-income ratio and living expenses to assess your ability to service the loan. High levels of existing debt, such as credit card balances, personal loans, or car loans, can raise concerns about your financial management and ability to take on additional debt.
Similarly, excessive living expenses, such as high rent, utility bills, or discretionary spending, can signal to lenders that you may struggle to make your mortgage repayments. Review your expenses and make efforts to reduce or eliminate unnecessary debts and expenses before applying for a home loan.
This is an area that many of us struggle with, sometimes not even realising where our money is leaking. Work with a budget, it is critical to have one and to check in on pay day, even just for 15 minutes to see how you’re travelling and where you can reduce expenses and save more. (Note: by making saving an expense and setting up on auto, you will be surprised how it little you miss it, it will also give you practice on paying a home loan.)
Seek Professional Guidance
Navigating the home loan application process can be complex, especially for first-time homebuyers. Engaging the services of a reputable mortgage broker can significantly increase your chances of getting approved on the first try. Even more important, we will teach you as you go, if that is what you want, ensuring that you have that information going forward and can build on that quickly.
As mortgage brokers, Brisbane Home Loans specialise in matching borrowers with the right lender based on their specific circumstances and financial profile. Each lender has unique lending policies, niches and risk appetites they operate within.
For example, some lenders may be more flexible in allowing the use of just one year’s income for newer self-employed borrowers if it shows strong cash flow. Others may offer more attractive pricing for borrowers with lower loan-to-value ratios and greater equity. Certain lenders also cater to specific professional segments like doctors or lawyers, allowing higher LVRs without Lender’s Mortgage Insurance.
An experienced broker understands these nuances and can ensure you are matched with a lender whose policies and products best fit your needs, significantly boosting your approval odds. No doubt, this is why 74% of home loans are now being written by Mortgage Brokers.
Provide Comprehensive Documentation
Lenders require a substantial amount of documentation to verify your financial situation, employment, and ability to repay the loan. Being prepared with all the necessary documentation can streamline the application process, reducing your stress level and reaching your goals sooner. (Note: Don’t hide anything from your Mortgage Broker, we are here to help, and we can only do that if we have all relevant information. Common documents required include identification, proof of income, asset and liability statements, rental history or mortgage repayments, proof of deposit or savings, and additional documentation for self-employed applicants.
What Lenders Evaluate Beyond Income
While income is certainly a factor that lenders assess, they place significant emphasis on your overall stability profile across residence, employment, credit conduct and ability to service the loan.
Lenders love to see borrowers who have demonstrated residential stability by living at the same address for an extended period, typically 12-24 months or longer. They want to avoid frequent movers who may raise concerns.
Your credit report and history of financial conduct is also crucial. Lenders scrutinize these for any past delinquencies, defaults or other blemishes that could suggest poor financial discipline. An excellent, unblemished credit history with all payments made on time is ideal.
As ASIC’s regulatory guidance states, lenders must evaluate “whether that income is consistent and likely to remain at that level for the term of the credit product being considered.”
So while a high income is helpful, a borrower with moderate but consistent income who has demonstrated financial discipline and stability across all areas is often viewed as lower risk than someone with higher income lacking that stability foundation, not withstanding, borrowing capacity. (Note: many people don’t realise that a second income can be highly beneficial toward your borrowing capacity more than you might expect, even a part-time or casual income. The tax burden on that second income is often lower, giving a larger than expected boost to family or couple’s borrowing capacity)
By following these steps and being proactive in your preparation, you can significantly increase your chances of getting your home loan approved on the first try. With the guidance of an experienced mortgage broker, you can navigate the lending process with confidence and move one step closer to achieving your dream of homeownership. Don’t waste a moment. We would love to help you get credit ready, even if you are still six months away from buying your first home. There is often information we can share with you to ensure you are credit ready when it is time to purchase. Call us today for an obligation free chat. 07) 3889 9250
Sources:
ASIC Regulatory Guide 209 – Credit licensing: Responsible lending conduct
APRA Prudential Practice Guide APG 223 – Residential Mortgage Lending
Lender websites (ANZ, CBA, Westpac, NAB)
