If you’re about to embark on the wonderfully daunting journey of a home loan, we’ve got your back.
Buying a property is exciting, but the hurdles you’re faced with before you even get the keys can turn buyers off. Want an approved home loan application? It helps to know what lenders are looking for.
To make the first step easier, here are ten red flags for lenders when assessing home loan applications in Australia.
1. Spending Habits
The size of your salary isn’t the only factor, but also the size of your lifestyle.
For example, if you have a tendency to rack up debt on store credit cards, chances are the banks will question your lifestyle.
It’s not a simple matter of weighing up if you have the funds coming in to pay off a home loan, but determining if your spending habits are conducive to managing a mortgage.
Ask yourself this: how much of your income do you spend per week on living your best life? If you cannot part with indulgent weekends or weekly shopping sprees, perhaps it’s time to reconsider your needs and wants.
2. You Left Something Out
When you’re asked to disclose your financial information on a home loan application, that means being honest. Got a credit card you’d rather the lender not know about? Include it on the form, or it’s likely to be discovered during assessment.
It’s important to show every expense on your application.
Lenders do have access to bank statements and it is possible to uncover expenses that aren’t accounted for. Even if it’s minor, the non disclosure will give them a reason to reject.
3. Your Credit History Isn’t Flash
It may seem like a no-brainer, but failing to meet bill deadlines or other loans is going to raise major red flags.
While you can’t remove a poor credit history, you can make positive changes. If you can prove more than two years of good credit history, the bank see that as evidence that you’ve improved your financial situation.
4. You Don’t Have a Credit History
No credit history is better than a bad one, right? Well, not necessarily.
Choosing not to have a credit card is a safe option for people who want to avoid overspending, however the banks need to see if you are capable of meeting payment deadlines.
Avoiding debt is generally a good thing, but you’ll need some past credit history to show you are capable of the pressures that come with paying off a home loan.
5. You Have a Criminal Record
Surprised? Having a criminal record is actually a common reason people get rejected for home loans.
You might not consider yourself a criminal, but some driving convictions can show up on your criminal records. The good news is they don’t last forever.
Depending on the case and state or territory, check to see when you’re in the clear, and drive safe.
6. You Got a Hefty Inheritance
The banks don’t care if you landed a decent inheritance, your parents helped out with a deposit, or even if you had an epic win at the casino. The most important factor is your ability to save.
Even if you turn up with a solid chunk of cash for a deposit, that may not be enough. Lenders may investigate your spending behaviours via transaction records to determine if you can afford the mortgage yourself.
7. You’ve Had Several Jobs in the Past Six Months
Job stability is a major factor towards receiving a home loan. As a general rule, Australian banks prefer the borrower to be employed by the same employer for at least six months.
If you’ve recently moved into a new area, lenders may want to see that you held a job for two years prior.
8. You Don’t Have a Stable Income
If you get paid on commission, are self-employed, or perhaps do shift work, banks may be more cautious. A stable monthly income is favourable, however you can show your average income over a number of months.
9. You Forgot to File Your Tax Last Year
Considering it is the law to file your tax every financial year, there’s no surprise the banks want to see a clear record.
Luckily they don’t normally check beyond two years, so if you were a bit slack in early adulthood, you can still get the seal of approval.
10. Your Eyes are Bigger Than Your Earnings
Shopping for million dollar homes on a $300,000 budget? Your lender will notice. The reason for a home loan rejection could be as simple as assuming you can borrow more than you think.
If you’re looking at houses that are unrealistic on your budget, it can be an indication to lenders that you’re not a responsible borrower. It’s worth arranging an appointment with a broker to determine a rough budget before you start shopping.