There are three key factors for getting your home loan application approved:
- loan serviceability,
- your credit rating/score, and
- the amount of deposit you can provide.
Let’s look at each one of these factors in turn.
Home loan serviceability
The serviceability of your home loan is your ability to make your repayments. Lenders make an assessment of serviceability based on:
- you (and/or your partner’s) level of income.
You’ll need to provide a lender with evidence of your stable income as part of your application.
- you (and/or your partner’s) level of expenses and other commitments.
For example, any other personal loan or credit card repayments you mighty have, as well as other ongoing expenses.
You will usually be required to show a budget of your realistic income and expenses. Ideally your income should exceed your expenses by as much as possible to show that you can afford your home loan repayments.
Try and cut back on discretionary expenses so you’ll be able to demonstrate that you have more income available for your home loan repayments.
- the amount you want to borrow.
The more you want to borrow, the higher your repayments will be.
You can reduce the repayments by applying to increase your loan term to 30 years instead of 25 years. However, it’s important to understand that you’ll pay more interest by having a longer loan term.
Your credit rating/score
Your credit rating is a score based on your past credit repayments. If you always make your repayments on time, you’ll have a good credit rating.
However, if you make late payments or default, you’ll develop a bad credit rating and you’ll find it harder to get finance. Your credit rating is compiled by credit reporting agencies. Lenders will access it as part of assessing your home loan application.
It’s important to note that utility services like mobile phone plans and electricity are all forms of credit that can affect your credit rating.
The amount of deposit you can provide for your home loan
The amount you need to borrow is known as the ‘funds to complete settlement’. Your total purchase costs will include the price of the property plus any associated fees such as:
- stamp/transfer duty. This is a government tax on the sale that’s paid by you as the buyer.
- legal conveyancing costs to transfer the title of the property to you.
- building/pest inspections.
- lenders’ mortgage insurance (LMI). Most lenders will charge you LMI if you can’t provide a deposit of at least 20%.
The table below shows you how much deposit you need in dollar terms if you can provide a 20% or 10% deposit on a property worth $750,000 and a property worth $500,000.
|Property value||10% deposit||20% deposit|
How we can help
At Wisebuy Investment Group mortgage professionals in Newcastle, our experienced and licensed brokers can help you to get a home loan.
We’ll take the time to understand your individual situation before providing you with advice. We understand the lending criteria of different lenders, so we’ll recommend an appropriate lender for your situation. We’ll also help you with your loan application. And best of all, our service is free!