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Before deciding to apply for a home loan, there are a number of things you can prepare before your meeting with your mortgage broker or lender, so they can help you through each stage of the application process.
Know your finances
Know where you are now with your personal finances and have a plan for the future. Be able to show your monthly income and expenses, your savings and investments, any personal loans and leases, what you have in the bank and on the credit card.
Tips:
Get help from an Accountant or Financial Planner
Use one of the inexpensive personal finance software packages available eg MYOB
Prepare a budget
Think like a lender
Put yourself in a lenders shoes and think about what information they will be asking you, what evidence you will need to provide, what qualities they will be seeking, and what additional information you can provide to support your loan application.
Tips:
Do some research - talk to people you know who have applied for a loan and ask them about their experience, grab a book on mortgages or use the internet
Get hold of a loan application form or a mortgage document check list and familiarize yourself with what information you will need to provide
Talk to an MIAA Member - they make applications to lenders constantly and will work for you to make the loan application process as easy and stress-free as possible
Review your credit reference
Everyone in Australia who has previously had credit usually has a credit reference. This is held by a company called Baycorp Advantage. It is a record of your credit history, going back five years, detailing any loan enquiries or applications you have made, if there has been a default on a credit card or loan, a bankruptcy, even if you have an outstanding bill. You can purchase a copy of your credit reference from www.mycreditfile.com.au.
Lenders will look at your credit reference in the loan application process and a negative reference will affect a persons ability to borrow money.
Tips:
Be honest and upfront with your lender/mortgage broker. It is best they find out from you, not your credit reference, if there are any problems with your credit history
If there has been a problem, explain why it occurred and how you rectified it
Do not make too may applications for finance. Each one shows up on your credit report and multiple enquiries can be equated to a problem
Do not have any arrears on bills, credit cards or store cards
If you believe there to be any discrepancies or mistakes on your credit reference you are able to challenge them.
Non-conforming lenders will consider applications from people with more serious credit issues. However, they will still expect the borrower to explain the problems that occurred and the steps taken, or are being taken to correct them.
Reduce the plastic
When applying for a loan, lenders will want to know how many credit or store cards you currently have and what the limits are on each card what you have the potential to spend, not what you currently owe or how good you have been at repayments.
Tips
Eliminate any excess credit or store cards you have
Reduce the limits on the credit and store cards you use
Save, Save, Save
By demonstrating a good and constant savings record, then you show the lender you can manage a mortgage. Generally lenders want to see a minimum of 5% saved regularly over six moth or more.
Tips
By being able to put down a 20% deposit on the property, the borrower avoids the lender having to take out Lenders Mortgage Insurance (LMI). LMI criteria is more stringent and less flexible and the insurance company is generally not as receptive as lenders when it comes to credit problems
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