While the road to getting that all important pre-approval for a home loan can be almost too easy for some, others seem to find it littered with potholes.
Whether you’re a first home buyer or a seasoned savvy investor, dealing with the finance industry is a necessary evil. For many, navigating the home loan process to purchase property can feel frustrating, intimidating and can leave you with an overwhelming sense of anxiety. While saving for the deposit alone can be quite the arduous task in itself, the wait to find out whether a lending provider has approved your application or not can make you question whether the journey was all worth it.
For anyone even remotely familiar with the current state of Australia’s real estate market, it’s never been more important to go property shopping with a pre-approval. If a lender pre-approves you for a loan, they will do so for a specific amount. In turn, this allows you to focus on house hunting for the properties you can afford. While this might provide a humbling reality check, it can also help to speed up the final home loan process when you eventually find your winner.
However, the road to getting a pre-approved for a home loan can be full of potholes – many people simply don’t see them coming, and they can significantly derail your mortgage dreams off course. As such, what road hazards should potential buyers be aware of?
Five Potholes To Avoid On The Road To A Home Loan
Too many first time borrowers make the mistake of assuming that getting approved for a home loan is as simple as saving up for a deposit, walking into a bank with the paperwork, and getting a pre-approval. Unfortunately for many, this simply just isn’t the case.
In Australia, there’s a wide range of banks and lending providers to choose from. While each has their own varying lending policies and procedures, there are a few key factors that creditors may view as red flags when potential borrowers apply 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 the bank’s decision to approve your application for a home loan or not.
According to Rodd Attrill, the General Manager of Banking at Compare The Market, banks were beginning to crack down on borrowers living above their means.
“Lenders will be reviewing spending patterns of all people applying for loans from the number of direct debits to gyms and entertainment platforms right through to regular lunches and ATM withdrawals,” he said.
“The scrutiny of each transaction will be like we have never seen before, as banks react to the Royal Commission findings and ensure that no person is given a home loan without a full forensic review of spending habits to ensure the repayment of the loan can be made without negatively impacting the lifestyle of the borrower from a lack of residual income.”
The fall out of the 2017 Royal Commission into the Banking, Superannuation and Financial Services industries involved 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. As such, what are a few of the more surprising reasons as to why a bank would turn an applicant down for a home loan?
Gambling Habits – If you have apps like The Lott or Sportsbet that even semi-regularly appear on your bank statement, it can make you appear like an applicant that a lending institute wouldn’t fancy betting on when it comes to paying back a loan. While buying an instant scratch it won’t make or break your mortgage application, do yourself a favour and ditch these apps.
Buy Now, Pay Later Services – Afterpay, ZipMoney and other “buy now, pay later” apps are certainly having their moment in the spotlight, but on a home loan application the easy access to credit can be a liability. Banks can interpret using these apps as an applicant living beyond their means, so try to take a break from them for a few months if you want to apply for a loan.
Credit Card Limits – Even if you don’t owe a single dollar on your credit, the potential that you could owe in the eyes of a bank is linked to your credit limit. If you have access to a credit card for say $10,000, actively lower this limit as much as you can so that your mortgage application has less potential liabilities linked to it.
Active Subscriptions – If you were to scrutinise your living expenses like a bank or lending institute would, are your active subscriptions for things like Netflix, Spotify and Disney Plus starting to add up? As an alternative, consider pooling streaming services with members of your family or household to cut the monthly bill down.
Meal Delivery Services – While ordering from Uber Eats once a month on a Saturday night is a welcomed treat, the costs can quickly add up as living expenses if you’re guilty of ordering in multiple times a week. It’s also worth paying attention to home delivery services like HelloFresh, as these all count towards regular living expenses if they’re a normal occurrence in your household.
Since purchasing a home is not an everyday purchase for most Australians, navigating the many options can be overwhelming. Thus, many applicants stick with their everyday banking provider instead of taking the leap to explore other options when it comes to finance for a property.
However, using a mortgage broker offers an alternative. Not only will they be able to explore all of the home loan products and guide you on the most suitable fit for your personal circumstances, but they’re also an invaluable resource when it comes to submitting a home loan application that puts you in the most favourable position – but where do you find one?
Taking The Stress Out Of Home Loans
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.