About to apply for a mortgage?

Well, the good news is that in Australia successful mortgage applications are achievable. Infact, according to Illion there are currently 6 million active home loans in Australia, collectively worth about $2.1 trillion.

While preparing to submit a mortgage application is a very exciting time in your life, (after all you want that dream home!), it can be a daunting and stressful time too.

Thankfully there are several things you can do to increase your chances of getting approved. In this guide, we will outline some of the most pertinent of them for you.

1. Be Employed

Ideally banks and financial lending institutions prefer you to have been employed at a company for a minimum of 6 months prior to your mortgage application. So, bear this in mind if you have recently left one job to start a new one immediately.

If you are self-employed, then usually they like you to have been in business for a period of at least 2 years.

2. Have a sizable deposit

As a rule, the larger the size of your deposit, the lower the ‘risk’ you are to the lender.

Most banks look for a deposit of 20% of the purchase price, as they consider this to be a ‘safe’ investment for them. To put this into context. If you want to buy a house worth $400,000 you will need to have saved up an $80,000 deposit.

That said some lenders do allow you to borrow more than 80% of the purchase price. However, this usually involves them charging you an additional Mortgage Insurance fee and being much stricter when it comes to assessing your application.

3. Eliminate all other debt

Before applying for a home loan be sure to eliminate all other debt you may have. This includes things like a car loan, student debt, personal loans, as well as products you might have bought on higher purchase and credit card.

Mortgage lenders look very closely at your credit history. If you owe money to lots of different organisations, then the chances are you won’t get approved.

One way around this might be to consolidate your debts into one payment which therefore improves your credit history.

Be sure also to reduce your credit card limit to $500, or better still cancel it completely. Even though you might have a zero balance on your credit card, the fact that you may have a $10,000 limit could well count against you because in theory you could take up that additional debt at any time.

4. Pay rent and bills on time

If you are currently in rental accommodation, be sure to pay your rent on time and the full amount every time it is due.

This is easy to do if you organise a direct debit and will demonstrate to the bank that you can honour a sizeable and regular financial commitment.

Likewise, be sure you pay your other bills on time too because this will demonstrate to your bank that you are a reliable investment.

5. Have a guarantor

Having a guarantor is a very good way to get your mortgage application approved, particularly for younger, first-time buyers.

A guarantor is essentially someone who is prepared to guarantee that they will pay the mortgage on your behalf if you can’t.

Whilst the banks won’t want you to rely on this as a form of payment, they will see it as a good back up plan should you fall on hard times.

6. Have all your documentation ready

Lenders will ask you for a lot of information when you are lodging a mortgage application. So be sure to have all the paperwork intact prior to submitting yours.

Some of the things they will require you to have is a copy of your driver’s licence, Medicare or passport.

In addition, they will also require you to present them with payslips, credit card statements, rental ledgers, up to 3 months of bank statements.

If you are self-employed, you will also need two years’ worth of personal tax returns as well as personal tax assessment notices and company or trust tax returns.

7. Be Realistic about how much you can borrow

Many mortgage applications are unsuccessful because the suppliant is unrealistic in how much money they want to borrow.

To ensure that you have a good understanding of your borrowing capacity it is worth using this calculator to get a better feel for what you can ask for, prior to submitting your application.

8. Engage a Mortgage Broker

It is worth remembering that mortgage brokers are professionals who have submitted many successful mortgage applications over their careers.

So, it might be a good idea to engage one, as their knowledge and experience could well get your application over the line.

Mortgage brokers act as a handler who deal with banks and other finance lenders to secure home loans for their clients.

They can also apply for a loan on your behalf and manage the process for you all the way through to settlement, which takes away a lot of the stress for you.

Conclusion

So, there you have it! Our guide to 8 considerations for a successful mortgage application.

Whilst there are no guarantees, if you take heed of what we have outlined above, this should significantly improve your chances of securing a loan to buy your next home.

Once your home loan is approved, these tips for how to pay off your mortgage as quickly as possible may well be useful to you.

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