Updated: Feb 3, 2019
7 hot tips if your resolution is to get a mortgage in the New Year
Sometimes, just getting through Christmas can be enough of a slog without worrying about the New Year. But if buying a home is top of your priorities, here are 7 things to think about that could definitely improve your chances of a mortgage.
1. Don’t lose sight of your debt
New Year is a great time to pay down existing debts and avoid taking on any new ones. New Year sales might be tempting but stop – think again. Getting your own home is now your number one priority.
Make sure you pay all your bills on time because lenders will always look very closely at your credit file. And they want to feel confident you can manage those home loan repayments.
2. It’s OK to check your credit score
A lot of people think that checking your credit report can harm your overall score. This isn’t true. There are two types of checks that can be made on your credit score. Checking your own is a ‘soft’ enquiry and won’t affect your score. But giving a lender permission to check your report is classed as a ‘hard’ enquiry and does affect your score. The Australian Securities and Investments Commission (ASIC) suggest an annual personal check, something you are entitled to do for free, to:
• Make sure that your name or date of birth are correct
• See if your address needs updating
• Check if any debt has been listed twice or whether the amounts are correct
• Check whether you have been recorded as missing any repayments
• Check whether someone might have stolen your identity to get credit. It can happen.
If anything isn’t correct - now’s the time to fix it. Have a look at where and how to check your score on ASIC’s Money Smart Website
3. Keep your documents safe and sound
When you do apply for a loan, the more information you provide, the better your chances of approval. So keep all the paperwork, things like statements for your loans and any credit cards, your savings records, as well as pay slips and your tax returns.
4. There’s more than one type of mortgage
Principle and interest or interest only? Fixed or variable? When you’re choosing a home loan it's important to work out the features that will best suit you – and what each type of loan will cost you in fees. Again, ASIC can help. They cover off all the different types of loans available and what you need to know or think about before you apply. Check them out here to find out about:
• How to compare home loans
• Principal and interest loans
• Interest only loans
• Variable, fixed and split rate home loans
• Redraw, offset and line of credit
• Construction loans for building or renovating.
5. Don’t make any sudden moves during the buying process
Leaving a corporate job to start your own business or looking for a new workplace can be an exciting change, but it can affect your ability to borrow when you’re trying to get a home loan. Starting a new business might mean pretty up and down cash flow at the beginning or that you don’t have the standard documentation traditional lenders like banks look for to assess your application.
If you are already your own boss, don’t worry - there are alternatives. Because it’s not always possible to provide all the up-to-date paperwork or proof of standard income required, some lenders – like the big non-bank Pepper Money – have created what’s called alternative documentation (alt doc) loan that you can check out.
6. Some savings are more ‘genuine’ than others
Lenders want reassurance you have the ability to save. They know that people who save more than 5 per cent of the purchase price in a savings account, shares or term deposit, are much more likely to pay back a home loan than people who don’t show they can save. Most look for what they call genuine savings, so it’s a good idea to put all of your spare funds into a separate savings account and keep the regular contributions coming into it.
7. Research. Research. Research again
If the banks say ‘no’, don’t give up yet. The good news is there are lenders that look at the big picture and consider your individual circumstances as a whole, rather than reject an application based on a preset list of rules. So always check.