The home loan market right now is in a very unique position.

We are seeing record lows when it comes to interest rates and lending rates as well as a (arguably) much needed calming of the home price increases throughout many parts of the country.

Upon reviewing the current state of the lending market, we can see base level interest rates as low as 2.69% which was further strengthened by the RBA’s most recent rate cut. In addition to this, changes to APRA’s recommendations around assessing home loan applications means that most people are likely to be approved for tens of thousands of dollars more which will no doubt see the property market react in a positive way. 

When the market ripe for making some great investment decisions, buyers need to ensure that they are doing everything they can to give themselves the best chance of success when it comes to getting approval on their loan applications.

Most people who are preparing to enter the market for the first time or increase their investment portfolio know that a consistent track record when it comes to savings, as well as good credit scores will help them achieve their goals. However, there are several things that are less commonly known that could impact your application negatively.

Be careful with your non-essential expenses.

Since the Royal Commission, lenders have increased the level of scrutiny they carry out on home loan applications in order to be seen doing the right thing. A few years ago, lenders would in most cases focuses solely on your major financial metrics such as income, current debt and credit levels as well as overall credit score and credit file activity.

These days it is very different. More and more we are hearing stories of lenders rejecting applications for specific spending habits that they deem “excessive”. With more and more documentation being required, including detailed bank statements going back several quarters, banks and lenders are now checking in detail exactly where you are spending your money, and depending on the lenders criteria this may affect you negatively.

In addition to this, modern software has made it much easier for banks to digest your bank statement information and turn this into usable data in order to profile your risk level. It turns out, if you are ordering Uber Eats every other night and spending your money on expensive weekends away, this defiantly might come back to bite you.

Ask your friends to ‘hold the gags’ when it comes to transferring money.

It may come as a complete surprise, but banking and lending institutions don’t have a track record for having the greatest sense of humour. Similar to point one, software is now used to scan your bank statement information in their assessment process and this software is able to pick up on anything out of the ordinary that might cause a bank to raise its eyebrows when assessing your risk level.

This stands for both outgoing transactions as well as incoming funds, so not only is it a bad idea to make a cash transfer for “sex, drugs and rock and roll” its just as bad if you are receiving money with similar risqué memo’s attached to the transaction reference. If you are serious about getting approved, be serious about your bank statements. They are one of the main documents used to assess your suitability so make sure you are putting your best foot forward.

Heading out on the town? Might be best to take cash.

In 2019, if it happens online it can be found. Purchases on your EFTPOS and Credit Cards are no exception. If you have ever woken up in the morning too scared to open your online banking to face the truth about the damage you did the night before, then it is probably safe to assume that your bank isn’t going to like seeing this either.

Now, we are not suggesting that in order to get approved for a loan you need to sit at home every weekend eating two minute noodles, but for occasions where your spending may be uncharacteristically erratic, it might be best to go into the evening with cash.

Prioritising saving a deposit over debt reduction.

The majority of Australians carry some type of debt. Whether his is HEC’s, car loans or personal loans, these debts affect your ability to borrow from lenders in two main ways. The first is the impact debt repayments have on your disposable income. Obviously, monthly payment obligations are classified as an expense until the loan is fully paid. This means that you have less money left over at the end of the month to pay for things like mortgage repayments.

Similarly, the amount of credit that has been extended to you as a consumer across secured and unsecured loans as well as credit and store cards increases your overall level of risk in the eyes of a lender. Whilst saving for a deposit is important, it is also important to proactively reduce the overall level of debt you carry. Both will help you reach your goal of owning a home equally.

Not Focussing on Your Lender/’s of Choice

There are a lot of misconceptions when it comes to applying for multiple loans at the same time in order to increase your chances of being approved and increase your ability to have a choice when it comes to selecting a final lender to work with. Whilst banks expect you to seek a few different options, going to far with this can make you look desperate and not confident in your ability to be approved.

When it comes time to seek pre-approval make sure you have already shortlisted the best mortgage options to suit your requirements, and only apply for a couple at a time. This is likely to help your application because in the eyes of a lender there is a higher chance that they will win your business if your application is strong.

Wanting to know what to do when you are ready to act?

If you are currently in the process of looking for a home or investment property and are yet to finalise your home loan selections and application, then it is the perfect time to speak to a mortgage broker. Brokers can help you with all aspects of putting together your application as well as provide professional advice on the best lenders and home loan packages that suit your specific needs. If you would like to organise an obligation free discussion, then please reach out. 

Bernie Kyne
Mortgage Consultant
0400141757
bernie.kyne@mortgage-express.com.au