Seven tips for getting a home loan
WHETHER you’re a first-time homebuyer or investor, upsizing, downsizing, extending or refinancing, the most important consideration besides the property itself is obtaining finance.
As we face an affordability crisis and banks tighten their lending policies there are seven things to consider when applying for a loan:
Be finance ready: Ensure you have perfect repayment history. Lenders generally ask for statements of your credit cards, and other debts, to demonstrate you are responsible. If you are late with any payments or just missed a payment you will be on the back foot and with more than one missed payment you can be declined.
Check your credit rating: This is free and it provides you comfort you will be entitled to a rate of say 3.7% instead of 5% plus. I have seen so many situations where a phone bill was overlooked, someone trusted a friend to pay an electricity bill or a relationship breakdown led to bills not being paid through spite or legal advice. Any default on your credit file could seriously impact your ability to get a good rate and even obtain a loan.
Consider reducing any credit card: Try to reduce the number of credit cards to a minimum, if possible to only one or two. Reduce the limits on the cards to a minimum. Borrowing capacity will increase immediately. Lenders factor in the full limit of the cards, not what is owing.
Consider buying ‘new’ (to be built) property if you just want to get into the market and do not have enough for stamp duty. You could save tens of thousands by not purchasing something already built. Given prices closer to a CBD, it may be worth buying further out where there is transport and amenities, and you are not sacrificing a good way of life but where you can buy a house for $450,000 and at least get your foot on the property ladder.
Renting to invest or, as some are labelling it, ‘rentvesting’ means a person continues to rent, while maximising and improving their borrowing capacity by buying an investment property. Borrowing capacity will often be higher if buying an investment property rather than a home, depending on the amount of rent the borrower has chosen to continue to pay.
Prepared and aware: Keep your paperwork up to date, especially if self-employed, and get your tax returns done. It can make a huge difference in rate and borrowing power when tax returns and assessment notices can be supplied to the lender.
Use a broker: Don’t shop around for the best rate as it could inadvertently end up with several credit inquiries on your credit report. The more credit hits you have the more of a risk you become to a lender. A broker speaks the language of the lender, they can compare many servicing calculators, not just the bank you’re applying with. A broker will point you in the right direction so you can diversify your lending options.