How will my home loan application be assessed?

Applying for a home loan can often feel like you’re committing to an avalanche of paperwork. But when you decide to make that leap to home ownership, what does the mortgage lender actually assess your home loan application on?

Income

A big part of your ability to take out a home loan, is going to be your ability to service or repay that debt. The lender will want to see that you are employed or self-employed, earning a consistent income and will want to see how long you have been in your current employment.

Even if you have a pre-approval, your employment should remain the same. Any foreseeable change in your financial circumstance can affect your ability to acquire the home loan.

Existing debt

The lender will need to know what existing debts you have including personal loans, credit cards, other home loans, HECS or student loans, lines of credit and now even things like buy now, pay later accounts.

They take your level of debt and your repayment history on these debts into consideration when assessing your new home loan application. Existing home loan debt is assessed at a higher rate than the advertised rate. Credit cards are also looked at very carefully, many lenders will assume a 3% monthly repayment amount even if you don’t use the card.

Spending habits

Lenders are now asking for precise accounting of your living expenses and discretionary spending habits. In the past it was assumed that we all had the same or similar living expenses irrespective of our income. This assumption is being challenged as consumer spending habits have changed significantly. Many lenders will now ask for at least 3 months of bank statements to verify your spending habits.

Deposit savings

You will need to have a deposit saved, unless you plan on using a guarantor. For most lenders, if you are borrowing 90% or more, you will need to show genuine savings - this means that you need to have been contributing to your savings account consistently over time. Lenders usually need to see 5% saved over a minimum of 3 months.

Credit history

All prospective home loan lenders will perform a credit check on you when assessing your home loan application. Your credit record has information like any loan enquiries over the last five years, details of any debts you have applied for, any credit infringements, what type of debt it is, along with information on bankruptcy, insolvency and public proceedings.

Be transparent

There’s nothing better you can do in your home loan application with the lender than be open, honest and upfront.

If you intentionally leave something out of your home loan application or attempt to participate in non-disclosure, then you’re opening yourself for a world of trouble.

It’s also not worthwhile trying to hide credit cards or debt you have as this can negatively impact not only this application but future applications too.

Applying for a home loan application doesn’t have to be daunting, as long as you have made some wise financial decisions and are on top of your situation it’ll be a walk in the park.

Are you thinking about buying property soon? Contact your friendly and trustworthy Mortgage Broker today to discuss your circumstances and future goals.

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.