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Use this checklist to help improve your chances of a successful home loan application.
Not all home loans are created equal. In fact, lenders offer a range of different home loan products that may or may not suit your needs. For example, a variable home loan may be a good option if you need extra flexibility, while a fixed home loan might be a better fit if you value stability.
Likewise, many home loans come with supplementary products, such as redraw facilities or an offset account, which you should consider when comparing home loans. These can be great for paying your mortgage off faster, but in some cases may attract higher fees – so make sure you use them to your advantage.
You can talk to a mortgage broker to make sense of your options and find a home loan product that suits your needs without paying extra for features you don’t require.
When you apply for a home loan, lenders will often examine your credit history to assess your ability to repay the mortgage. To get approved, you’ll need to check your credit report and ensure it’s free from blemishes such as unpaid debts or late bill payments.
Remember that lenders can see your repayment history from the past two years and a reported credit default listing on your credit history for up to five years. You can remedy the situation by repaying any outstanding debts, in which case they’ll be able to see you have made payments and may take this into account when considering your application.
Paying off your credit card, personal loans, car finance or other debts may increase your borrowing power and boost your chances of getting approved.
Lenders will assess your capacity to repay the home loan, which is measured by comparing your income to your existing debts.
It’s simple: show your lender that you’re capable of servicing your existing debt with enough money left over to make your home loan repayments and they’ll be more likely to approve your application.
You may be able to borrow up to 95 per cent of the purchase price of your new home in certain circumstances. However, you’ll increase your chances of being approved if you can provide a higher deposit.
And if you can save at least 25 per cent deposit, you may avoid paying Lenders Mortgage Insurance (LMI), as well as have enough to cover stamp duty and other costs.
Lenders love job stability, so try not to switch employers just before you apply for a home loan. Long gaps in your employment history or having a large number of previous employers may also impact your chances of getting home loan approval.
You’ll need to prove your income, and you can often get a home loan faster by providing your employment details, pay slips and last two tax returns with your home loan application. Most lenders also recommend keeping your total mortgage repayments from exceeding around 30 per cent of your monthly income to increase your chances of securing the loan.
Applying for a home loan doesn’t have to be overwhelming. Focus on these five steps to help improve your chances of success, and remember to always compare offers to make sure you’re getting a home loan that’s suitable for you.