There are a number of factors a lender will consider when you ask for a home loan.
Knowing what they are looking for can increase your chances of being approved.
To qualify for any home loan you must have a deposit. Many lenders will consider borrowers with a 5 percent deposit (generally 10 percent for investment properties).
However, it is important to recognize that this is the minimum and is only offered to clients considered to be a very safe prospect.
In addition, you will need to have saved an amount to cover other costs involved in purchasing a property and taking out a loan, such as lender's mortgage insurance, government stamp duties and conveyancing fees.
For your loan application to go ahead, the mortgage insurer will also have to approve the application and be willing to provide the lender with insurance. Lender's mortgage insurance companies require a minimum of six months of "financials", that is, bank statements, pay slips or any other proof of income documents.
With most mainstream lenders, you also need to be able to show a pattern of genuine saving. Often described as "hurt money", it is often required to be at least 5 percent of the value of the property. This has to be money you (and your partner) have earned and saved, not a gift or other financial windfall.
Applicants with a higher disposable income are more likely to have their home loan application approved. The maximum loan repayment is often set as a percentage of your income.
The type of property, its location and its condition will all be evaluated when assessing your loan application. Comparable sales in the area are also investigated.
Lenders also consider your employment history. Temporary, probational positions or a volatile work history are not generally well regarded and may affect the outcome of your loan application.
The lender will also conduct a credit reference check with a credit bureau such as Equifax AU. Your credit history is a record, within up to the last seven years, of any defaults, substantially late payments, seriously overdue or outstanding debts, records of inquiries and bankruptcy.
This can often be a major determining factor in the success of a home loan application as lenders can flatly reject an application based on a poor credit history.
To find out where you stand, talk to me at Mrs. Mortgage.