If you’re thinking about applying for a home loan in the future, then knowing what a bank views as a red flag is important if you want to land a pre-approval.
Above all, the primary concern of any lending provider is mitigating their exposure to risk. If you’re able to present yourself as a favourable candidate for a home loan, it makes the process of getting pre-approved relatively straightforward, and things like a sizable deposit, a history of regular savings and a clean credit report will all work wonders in improving your application.
However, there are a number of things that have the potential to stand between you and getting pre-approved for a home loan. Too many prospective home buyers get caught off guard by these red flags, and just one of these can make or break a bank’s decision to approve your application for a home loan or not – so what are some of the more common roadblocks?
What Can Stop You From Getting A Home Loan
Although arguably long overdue, the fall out of the 2017 Royal Commission into the Banking, Superannuation and Financial Services industries saw many lending providers overhauling their consumer lending practices. One of the key changes that is very much in effect today is that banks now examine applicant’s living expenses with a fine tooth comb to ensure that no stone is left unturned, and that there is no doubt that the applicant would be able to potentially afford the repayments.
However, even if your expenses are in line with a lending institute’s criteria, there are also a number of other factors that can stand between you and a home loan pre-approval. The problem is that many potential borrowers aren’t even aware of them until it’s too late and they’ve already been declined.
Your Credit Score – In simple terms, your credit score or credit rating is a number that summarises your entire financial history. Even if you miss just one repayment on something like your phone bill, this can have a ripple effect on your financial future for years to come. If your score is too low, it can be incredibly difficult to get approved for a home loan.
Career Changes – Applying for a home loan and switching jobs at the same time is generally not a good idea. Lenders like to see stable and steady streams of income, and for most people, this means sticking to a long term job for at least twelve months. This way, the applicant is well and truly out of the probationary period and presents as financially responsible.
Credit Reliance – Lending providers don’t just look at how much credit you’ve applied for, but the type of provider as well. Over reliance on credit cards, payday loans and even “Buy Now, Pay Later” services like Afterpay can indicate to a bank that you are not financially stable enough to handle the repayment obligations of a home loan.
A Small Deposit – There’s a reason why lending providers want to see a demonstration of your savings skills, commitment and consistency. This is done via a home loan deposit, and not enough of a sizable one can work against you, particularly by the time that Lenders Mortgage Insurance is calculated. Thus, consider your options for government grants or guarantor loans.
Application Errors – While your current address may not seem like a factor when it comes to what affects your credit score, having incorrect details listed in your home loan application can decrease your chance of getting pre-approved. Although it may just be an oversight, a lending provider can interpret this as false information and even fraudulent.
Borrowing Capacity – If you’re applying for a home loan for $800,000 on a sole income of $55,000, your lending provider may wonder how you can possibly afford to meet potential repayments. In all fairness this isn’t an unreasonable query, so make sure that you are realistic with what you can afford, particularly considering the new loan servicing rules.
Apart from ticking all the right boxes, one of the first things that an applicant can do when it comes to getting approved for a home loan is to partner with a reputable mortgage broker. Regardless of your personal circumstances, mortgage brokers are industry professionals who know the ins and outs of the world of home loans.
Not only will they be able to suggest lending institutes that are suited to your own set of individual circumstances, but they can also help you with your documentation to ensure your application hits all the right notes – but where do you find one?
Partnering With An Experienced Home Loan Guru
The big attraction of buying your own home is just that – it’s yours, once you’ve paid back the banks of course. Apart from having somewhere to live, the quest for home ownership is also about having a long term investment strategy. If we’re looking at it from the viewpoint of decades instead of months, generally house prices do rise, and so does the value of your investment.
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
Credit Representative 499652 is authorised under Australian Credit License 389328.