Decades ago, getting a home loan approved was like taking out a debit card.
OK, maybe it wasn’t that easy, but it certainly wasn’t as hard as it is today!
In the wake of the Royal Commission into banking and finance misbehaviours, the result has been stricter lending policies and lengthier loan application processes.
Aspiring homeowners are copping the biggest hit of all, but the banks will also struggle with the changes. A lower sales rate could mean lower commissions for advisers. In addition, if a bank is unable to get a loan approved for a customer, that customer may move on to someone else.
It may be hard to get a loan at the moment, but it’s not impossible. In fact, there are many things you can do to increase your chances and get ahead of the rest.
Improve your chances of application approval with the help of these five tips, and get closer to making your dream home a reality. Here’s how:
1. Load up on super if you’re pushing 50
One thing that bankers are beginning to look out for in recent months is super.
If we’re younger, it’s something we often forget about. But if we’re older, it’s something we should do well to keep on track of.
The reason is loan term vs. retirement age. For example, if you’re 50, it’s unlikely you’ll be allowed to borrow on a 30 year term, unless you can prove that you have other assets and super. The banks need to know that you can afford to pay off the loan, even if you’re retired.
It will help considerably if you can explain to the banks exactly how you plan to do this. Boosting your super gives the banks more evidence, and ensures your talk is matching your walk.
One easy way to go about this is to speak to your employer about how much of your pay is going into your super. One bank manager suggests you boost your super for a minimum of at least three months before applying for a loan.
2. Get better at paying off your debts on time
Most lenders will take a thorough look at your credit history before approving your application for any kind of large-scale loan. Missing an odd payment here or there is common. But making this a habit could have a big impact on your ability to take out a loan down the track.
Nip this in the bud now, or at least several months before you try to sign your name on the dotted line. There are several easy ways to ensure you’re paying off your debts on time:
- Set up direct debits so that simply ‘forgetting to pay’ doesn’t impact your profile.
- Reduce the amount of debts you have by paying down any other loans or credit cards you have under your name.
- Reduce the amount of monthly bills you need to pay, so that more money is left over for your debts. Compare policies to get better deals on insurance, or you could balance transfer any credit card debt onto a card that offers 0% interest for a 12-month period, so you’re paying less each month in the interim.
- Solicit the help of a financial adviser to get on top of any debts you’re struggling with.
3. Look like a stable worker
Casual workers and job-hoppers can have a harder time getting approval than stable, full-time workers. This is because their present situation appears only temporary to banks, given the history. So even if you’re enjoying a high income at the moment, if you move around between gigs a lot, it could seem transient and unreliable to your lenders.
If you’re looking at buying a house, it’s a good idea to secure solid, permanent employment. Even if this is just a temporary measure in the three months leading up to your application, it could potentially mean the difference between getting a ‘no’ and a ‘yes.’
4. Save, save, save
The new strict lending policies mean that people with more savings will get ahead of the pack.
Savings help to prove that you have the ability to pay off the loan, and also that you’re responsible with your money. Those living paycheck to paycheck may have a harder time getting approvals than others.
If you show that you’ve been saving the weekly equivalent to the value of your loan repayment, banks will feel confident that you’ll be able to stick to your part in the plan.
5. Change your credit card limits
Huge credit card limits upwards of $10,000 could put a spanner in the works.
This could be compounded by the possibility that your balance is high, and you’re owing a lot to the card. Reducing your credit limit is an easy step, and some advisers believe good for your financial health in the long run.
Another option is to close down your credit card accounts altogether. The less debt you’re in, the less risky you are for the banks.
Bonus Tip. Use a mortgage broker
Using a mortgage broker is a great way to have someone help you check for available loans, provide step-by-step guidance and offer a variety of options. In the current market there are a number of reasons why to use a mortgage broker.
And remember that none of these measures you take have to be permanent. But in the lead up to getting a home loan approved, they could be essential.
Looking to save on your home loan? Compare your home loan with others on the market to find a better deal.