Trying to get your first mortgage? Here are 10 pro-tips to impress your bank
Getting a mortgage, especially your first one, can be a bit like joining a three-ring circus. Want to borrow hundreds of thousands of dollars? The bank is going to need you to jump through a few monetary hoops, and walk the financial tightrope first. How well you need to perform is only going to get more intense as the market becomes more volatile. So when you go in for that first mortgage, you better be ready to show off your financial nous. We spoke to Lower Hutt mortgage broker Ash Shergill, of Shergill Mortgage Brokers, and financial coach Elizabeth Blake of enable.me, about how to get your finances in tip-top shape.
1. Know your spending non-negotiables
These are the things you absolutely must spend money on each week. Everyone has different non-negotiables, but all areas should be up for scrutiny when you’re saving for a deposit. ‘‘This doesn’t mean spending $300 a week eating out. It means what is essential and what is a nice to have,’’ says Blake. ‘‘Can you go to a cheaper gym/work out at home using an app? Don’t go clothes shopping, and get off all mailing lists. Delete all buy-now-pay-later schemes.’’
2. Account conduct
‘‘The bank has no idea how you’re going to actually handle making your mortgage repayments – especially if you haven’t banked with them before. All they can really go by is what they see going on in those accounts,’’ says Shergill. ‘‘Account conduct is one thing people don’t really focus on enough, and it’s the simplest thing to fix.’’ The main thing to watch out for is going into overdraft when you don’t have one arranged on your account. Banks take that as a sign that you’re living beyond your means, and you’re not on top of your spending.
3. Keep track
Know exactly what you are spending your money on. Keep track using apps, spreadsheets, or even writing it down. ‘‘It’s amazing how much you can save if you are accountable – even to yourself, but telling someone your goal will fast track your ability to achieve it,’’ says Blake.
4. Multiple accounts
If you use a banking app on your phone, making accounts for every aspect of your finances is simple. You can have one for your savings, your holiday, that car you’re planning to buy, that upcoming birthday bash. Great! Except that ‘‘when the bank assesses the application, and they see that many statements, they actually do get put off a bit’’, Shergill says. Even if you know exactly why you have each account and what’s going on in them, to the bank it might suggest you’re not organised with your money. Close as many excess accounts as you can.
5. Be kind
The bank will be looking for red flags, but having a normal life shouldn’t be one of them. Under the CCCFA legislation, you’ll have heard stories of banks being incredibly picky, but some of the toughest rules have since been walked back. Your spending does determine your lending, however – so it’s best to eliminate or control the more discretionary items. ‘‘I think you have to have a balance,’’ says Blake. ‘‘There’s a sweet spot where you push yourself to discover what you are capable of – because most people have no idea – but you have to be able to live as well. Some people are willing and able to live like a monk, but most people aren’t.’’
6. Ditch the credit card
‘‘A $10,000 credit card, with a balance at zero, will basically be seen as an actual expense,’’ says Shergill. ‘‘The bank will regard that as a $10,000 debt that you have, which can impact how much you can borrow.’’ Shergill advises paying your credit card debt right down, lowering the amount you can access to a bare minimum, and keeping it there for the duration of the application process. ‘‘We want the balance to be at zero because if the bank comes back and says, ‘Hey, look, this credit card is potentially impacting how much they can borrow’. We can just say, ‘well, we’ll get rid of it’.’’
7. Provide the evidence
It’s much easier to get an approval if you are an employee rather than self-employed. If you are self-employed, you are required to provide the last two years’ financial statements – for some people, that might be difficult. ‘‘If you are considering leaving your fixed employment and becoming self-employed, it will be harder to get an approval,’’ says Blake. ‘‘That doesn’t mean it’s impossible, it just means there are more hoops to jump through. So delay that if you can, but bearing in mind a pre-approval is only short term, so you’d need to remain in employment until after the property settles.’’
8. Explain your savings
Some banks will count the amount you put into savings each pay packet as a living expense – even if you’re saving for your deposit. ‘‘In my applications, I write, ‘Hey, look at the moment they’re saving X amount of dollars, towards a deposit and once they secure a loan they won’t be’,’’ says Shergill. ‘‘I have to actually put that into the application as a safety net.’’
9. Keep your eyes on the prize
There are lots of ways to stay on track, but a good one is to collaborate with your friends and family. ‘‘If they know your goal, they will be supportive,’’ says Blake. ‘‘Try not to reward yourself for your great savings by starting to spend it. If you are a visual person, use a picture of your goal – for example, a house – to motivate you.
10. Three-month clean up
You want to present three months of the best version of your bank account possible. A mortgage broker will go through everything thoroughly and look for things that are red flags for banks. ‘‘If it’s pretty bad, then you actually have to wait another three months to have a cleaner looking account,’’ says Shergill. ‘‘But waiting another three months could mean that interest rates will go up further, or banking criteria is going to get tougher.’’ In other words, forget the spring-clean, get your account in tip-top shape now.