Everybody is talking about it – Getting a home loan is not as simple as it used to be.
So, you’re a first home buyer and you want to get a mortgage, how do you go about it?
When you are wanting to apply for a home loan, preparation is key. We cannot say it often enough!
The lenders are looking at both your spending and earning habits. The way that the banks do the assessment means that you need to think and act at least 3 months ahead of when you need to borrow money. Regardless of whether you are getting a home loan or a personal loan, the key things that the banks will ask for are:
3 months bank statements for your everyday accounts
6 months statements for any credit cards and loans
Proof of your income
A budget or proof of your regular expenditure
Your credit report – they typically run this themselves
There are other things that the lenders require such as proof of ID, but the big struggle for many with the banks today is the way that the banks look at your bank statements. The banks look to make sure that you are making payments for your credit facilities on time and that you are operating your bank accounts within their limits. This indicates to them that you will be able to pay back your home loan as you have a proven track record.
From a bank’s point of view it is fine to have an overdraft but going over that limit by even 50c means that you are not operating the account properly. The banks call this bad account conduct (Read more about “character” and credit scores here.) and will not look favourably at your application as a result of this “bad account behaviour”.
The same goes with paying your credit card bill one day after the date that it was due to be paid. Something to note – if you are operating your everyday account at a different bank to your credit card it can take time for the payment to come from Bank A to Bank B, and if you make the payment on the due date, you may end up with a late payment on your credit card. Easy to do, and also an easy fix when preparing to apply for a home loan.
As we’ve talked about at length in previous blogs – The banks are also looking at how much you spend on groceries, dining out, entertainment, subscriptions, insurance, motor vehicle and savings… and these are just the starters of the categories of spending that the banks are looking at. If the banks think you are spending too much on food, dining out and entertainment you may need to wait a further 90 days (3 months! It’s a long time when you’re keen to buy your first home!) for them to consider your application.
With the banks really looking at expenses and how you are using your money, ATM withdrawals give them a big question mark and if you are doing regular ATM withdrawals they will be questioning if you have a habit that you are hiding. So, keep in mind that the banks will ask less questions if you are getting a bit of cash out when you get your fuel or groceries. This will increase your transport or grocery costs so don’t go wild, especially if you have high expenses and low income. Remember – don’t make the mistake of getting cash out if you are paying by Credit Card, as this will be deemed a cash advance and interest will start occurring immediately.
So, if you are thinking of applying for a home loan to buy your first home, think about how you are spending your money in the time leading up to making an application.
By reining in your spending on non-essentials such as takeaways, you may find that you save a bit of money in the meantime and don’t need to borrow as much.