Before offering a home loan lenders may require a range of proofs of your current financial situation and ability to repay the loan in the future. Whether it’s your first or twenty-first loan, and whether you apply directly or through a mortgage broker, here’s some of the main tasks you may want to consider before you apply for a home loan to buy a house.
1. Have I researched and compared my options?
First, consider doing your research on what home loan would suit your buying situation. It’s a good idea to take into account factors such as the fees and features that apply to the loan. For an idea of some of the other factors to look out for when choosing a home loan, it could be worth looking at our Choosing A Home Loan Checklist before you sign on the dotted line.
The table below displays a snapshot of some of the lowest rate 5-Star rated variable home loan products on Canstar’s database, with links to providers’ websites. This table is sorted by the current advertised interest rate (lowest to highest), then by provider name (alphabetically). Before committing to a particular home loan product, check upfront with your lender and read the PDS to confirm whether the terms of the loan meet your needs and repayment capacity.
Based on residential first home buyer variable rate home loans available for a loan amount of $600,000 at 80% LVR, with principal and interest repayments. *Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning.
2. Can I repay the loan?
Lending institutions will want to see your proof of income. If you’re employed this will include your payslips (usually a few months’ worth of payslips, and more in some cases), and if you’re self-employed this will include your tax returns.
If you are relying on any other income sources to repay the loan, you will need evidence of this too. For example, lease information (for rental income), shareholding statements or Centrelink statements confirming any Government benefits.
3. What are my living expenses?
A written budget could help you keep track of your cash flow and plan your day-to-day savings and expenses – and if you decide to write yourself one, you need to make sure it’s realistic. If you haven’t already done up a budget for yourself, try our Budget Planner Calculator.
4. What is my credit rating or credit score?
Your credit score is important because it may influence how much credit a home loan lender is willing to give you as a borrower. A lower credit rating may be viewed by lenders as being a bigger risk as it could indicate an inability to meet repayments.
It’s a good idea to check your credit rating to get an idea of where you stand. Your credit history is held by private credit reporting agencies such as Veda and Dun & Bradstreet. Check out our summary of how to check your credit score.
5. Do I have a savings history?
Particularly if it’s your first big loan, you’ll probably need to show that you don’t spend everything you earn. If you need some help saving, check out our roundup of 101 easy ways to save money.
6. Am I in stable employment?
While a recent change of jobs won’t disqualify you from a loan, it may make it more challenging. Lenders are generally more comfortable lending to someone who has a steady employment history, rather than someone who has had frequent job changes or long gaps in employment.
This article lists some of the documentation you’ll need to prove your employment status.
7. Have I considered my current net worth?
Again, make sure your estimate is realistic. Your net worth is essentially a grand total of all your assets minus your liabilities. You may like to check out the Moneysmart Net Worth calculator to determine the strength of your current financial situation.
8. Do I have a deposit?
You’ll need to put down a deposit and pay any upfront fees, taxes and other purchase costs that may be associated with your loan. Most lenders may require a 20% deposit, and some may even be willing to accept minimums of 5%, but getting approval for a home loan is getting harder as banks across Australia further tighten their lending criteria amid growing regulatory concerns around household debt and lending standards.
If you can put a 20% deposit down you could end up paying less interest, and you may be able to avoid paying Lender’s Mortgage Insurance.
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