More and more house hunters are struggling to get home loan approvals because banks are tightening their lending criteria.
SCRIMPING and saving for a deposit used to be one of the toughest parts of buying a house but securing a loan is well on its way to claiming the title.
More and more house hunters are struggling to get loan approval because banks are tightening their lending criteria.
Finance and property expert Ayda Shabanz, who has been in the industry more than 15 years, couldn’t remember a more difficult time to get a loan.
“It doesn’t matter if it’s a personal, home or car loan – unless you know exactly what the bank is going to assess your application on, you’ll find it difficult because the criteria for lending has changed,” she said.
She said the trick to getting approval was good money management.
These are her tips to help buyers prepare when applying for a loan.
Get familiar with your credit file
Did you know you can buy your personal credit file online? Once you’re in possession of it, you will be able to view every inquiry that has ever been made on you, many of which may come as a surprise. On your credit file, you will see loans listed that you didn’t even take out, but may still be affecting your credit rating. The benefit of having your credit file is that you can see how the bank will review and assess you – except now you can answer the questions before they make assumptions. Furthermore, your credit file will highlight any outstanding loans or defaults you may have, the latter of which will remain on record for five years. While inconvenient, this isn’t a deal breaker if it can be explained from the outset. If it comes as a surprise, you risk your loan applications being automatically declined. Try www.mycreditfile.com.au
Pay your bills on time
We lead busy lives and our time poor nature makes it very easy to forget to pay a bill.
But if you’re applying for a loan soon, it’s really important to be on top of all of your bills, especially repayments to credit cards and other existing loans. Lenders are obliged to check your credit history and one of the latest queries I’m seeing is around late payments on cards or over limit fees. Let me make it crystal clear – moving forward, banks will be extremely hesitant to extend a loan or credit if you can’t pay your current cards on time. Increase the chances of your loan application being approved by setting up automatic payments and reminders, which will help you fulfil your end of the repayment deal.
Saving as much cash as you can will show lenders you can manage money.
Check yourself before you wreck yourself
You may be spending money just because you can. But in the eyes of a lender, if you spend all of your money then there’s no way you will be able to make any additional repayments. Upon any loan application being received, it is likely you will be asked to list your expenses. Please note, this isn’t something you can just make up as the lender assessing you will check your day-to-day account over the past six months to make sure your story checks out. That’s why it’s super important to have a budget that you stick to.
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Save cash regularly
I can’t emphasise this point enough: save, save and save some more. Each payday, you should be consistently saving the same amount in a separate account to prove that you have the ability to manage money. Typically speaking, banks will want to see a historical pattern for a minimum of six months but depending on the type of loan you’re after, this desired period may even be longer. Lenders are looking for proof that you can afford the loan comfortably, regardless of what you earn.
The importance of stability
Banks want to be sure that you’re stable. Stability is demonstrated through your employment history and how long you’ve lived at the same address. To help the chances of your loan application being processed, lenders will look favourably upon those who have maintained the same residential address for two years plus. It also helps to have been in the same job for 12 months or longer. However, if you’ve just got a new job in the same industry that you’ve been in for several years that pays more money, this won’t affect you provided that your probation period is over.
Lenders look favourably upon people who have lived at the same address for two years or more.
Maintain good loan conduct
It goes without saying that banks enjoy being repaid quickly. Therefore, if you’ve paid off any loans faster than required this is viewed upon admirably. Make sure that, at the very least, you always pay on time and you don’t miss any payments throughout the entire term of any loan that you have.
Avoid unnecessary debt!
If you’re privileged enough to be able to avoid being in debt, don’t be in debt. I say this because when it comes to home and commercial loans, it’s best to not have any unsecured debit in your name. By avoiding personal loans, car loans and credit cards, you make your borrowing power stronger. Also, most people have credit cards with large limits that they don’t use, but they don’t understand that lenders calculate the limit you have, regardless of what you actually use, and this can affect your borrowing capacity.
Use Zip Pay and Afterpay Cautiously!
You may think this isn’t a loan but don’t be fooled because it is classified as credit. Always remember that each time you apply for Afterpay or Zip Pay, you’re effectively getting a loan, which is recorded on your credit file. This is viewed unfavourably by banks because it implies that you’re already struggling to afford your lifestyle.