The last decade has seen big changes to how lenders assess mortgage applications, with a more conservative approach being adopted to how much they’re happy to lend, and considerably more scrutiny given to the information applicants provide.
You’re likely to be asked to provide detailed documentation to support your living expenses estimates – meaning you can no longer fiddle your numbers to create spending estimates that suit the amount you’re looking to borrow, and you’ll need to have a clear understanding of all your expenses before you submit your application.
What makes an applicant attractive to lenders?
Unsurprisingly, a good applicant has a stable employment history, low personal debts (for example, store cards, car loans, personal loans, credit cards and student debt) and an income that supports their lifestyle. Of course, having a sizeable deposit never hurts either.
One factor all lenders will assess is your credit score, and one lower than 550 out of 1,000 will see you branded high risk for a loan. ASIC’s MoneySmart explains anyone that’s ever applied for credit or a loan will have a report detailing their credit history (yes, you can request a free copy). As a guide, your report will include information about:
- The credit cards you hold, and repayment history.
- Any debts that were unpaid and overdue and have now been paid or settled.
- Defaults and other credit infringements, including utility bills or loan payments which are 60 days or more overdue and where debt collection activity has started.
- Any bankruptcies, court judgments, debt agreements or personal insolvency agreements in your name.
- Any credit you’ve applied for including loans you have been the guarantor on.
- Joint applicants on any credit you’ve applied for with another person.
- Commercial or business loans you have applied for since March 2014.
- Report requests – Which credit providers have requested copies of your credit report.
Not having a credit report or little experience paying back loans can actually hold you back, as lenders like to see evidence that you’ve successfully repaid the money on time.
Fear not, this can easily be addressed by taking on debt such as a small credit card, using it and paying off the balance regularly to show good conduct.
Having some savings and living within your means also makes you an attractive bet – a person that regularly pays their bills on time and has some money to put aside each pay cheque is less likely to renege on a repayment due to lack of funds.
Improving your ‘lendability’
If you’re not currently considered a good investment by lenders or you’re concerned about past financial conduct, there are things you can do.
If you’re in a new career or been through
If you have a chequered past when it comes to paying bills on time, set up direct debiting or ‘bill smoothing’ to ensure your rep for paying your way is repaired. If you have trouble living within your means, a financial advisor can provide guidance.
While each application will be assessed on its own merits, you’ll make the process quicker and far less stressful by addressing the above, and if possible, building a relationship with your bank and ask for help.
Many banks provide one-on-one advice about saving and banking products, so take advantage and set aside an hour to talk to a banker at your local branch about how to maximise your earnings – and become the ideal mortgage applicant in the long term.
Words by Melanie Hearse.
Are you a first-time buyer thinking of applying for a home loan? eChoice can help you understand your borrowing power and potentially secure home loan pre-approval so you can start scouting the property market. We have access to hundreds of products, so we’ll find you a competitive rate.