Findings from the Banking Royal Commission and changes to the way your credit history is logged and reported could have an impact on your next home loan application.
Before the commission, when banks were on the fence about giving you a loan, there was a much higher shot of you getting approved. Since the commission, lenders have changed their ways and, home loan growth has been on the decline since late last year with a thorny housing market and stricter lending criteria.
The ANZ Bank chief Shayne Elliott says that “people are still going to want to buy and own a home, so it’s not like any of this changes fundamental demand, but it will change the process, and it probably will make it harder for people to be successful in their applications”.
He says that following the commission, taking out a home loan is going to take longer and be a more onerous process. Keep this in mind when getting your affairs in order before applying because organisation and honesty can mean the difference between approval and rejection.
The banks will be looking at the following things throughout your application:
Banks give you a credit rating when assessing your loan application which is based on your credit score. This score works out how good you are at paying your bills as well as how many enquiries you have been involved in with credit providers.
Before you apply for a loan, find out what your credit score is and ensure that there are no mistakes. Even if your score isn’t ideal, start to make an effort to pay your bills on time as any improvement will be for the better in the banks’ eyes.
On the upside, with last month’s introduction of Comprehensive Credit Reporting, lenders now have a full view of your finances – not just your negative credit history.
The more savings you have, the better, especially if they portray consistency in your savings habits. Banks love to see that the money that you are earning outweighs your living and lifestyle expense, so review your savings history before your appointment to ensure there are no surprises.
Secure Income and Repayment Capabilities
Having a full-time job with a fixed income is ideal as it shows banks that you can reliably pay off your mortgage repayments. Ensuring your tax returns are up to date is part of this so make sure you aren’t lacking in that department. If you have a part-time job with a consistent income you can still be considered as long as you are deemed reliable, so don’t worry too much!
Limited fixed expenses
We all have bills we have to pay and other expenses that are recurring. These aren’t exactly a red flag to lenders however you should aim to reduce your fixed expenses as much as possible so that the bank sees that the maximum amount of money you can spare is being put back into paying them off. Not only having fewer expenses, but banks also want to see that if your circumstances change you will still be able to manage them. This means that if you are laid off or get injured your expenses won’t eat up any savings or what little income you have left leaving nothing to pay back the lender with.
Existing Loans and Credit Cards
Including personal loans, other home loans, student debts or miscellaneous debts, the bank will be doing a thorough check of what responsibilities you currently have. Loans are better than debts, so if you can, consolidate your debts through taking out a personal loan which will have much of the same criteria as a home loan.
Consistent Financial and Employment History
Stability is a primary consideration of the banks. Lenders want you to have a good employment track record – this means changing your job every two months isn’t ideal. Changing your place of residence has the same effect as it comes across as inconsistent and therefore unreliable.
Overall, bank employees might need to ask more questions and demand more documents such as bank statements to obtain a more detailed history of their customers.
To ensure stability, lenders may ask you for the following information when assessing your case:
- Proof of your identity (e.g. Medicare card and driver’s license)
- Two recent payslips (or your last two tax returns if you’re self-employed)
- Details of your outgoing expenses – bills and spending habits
- A rates notice (if refinancing) or a Contract of Sale
- The last six months of bank statements on your mortgage (if refinancing)
- Copies of your credit card and personal loan statements
You might have to take time to make sure that you meet each of these requirements; however there isn’t a rush. Take your time to ensure that you have the best fighting chance to acquire a home loan and eventually purchase your dream home. It’ll be worth it in the end!