Taking on a mortgage is one of the biggest financial commitments you'll ever make, so it's important you are prepared for making that all-important application. Making several mortgage applications and being turned down can reflect negatively on your credit file, which is another reason why it's essential to get your finances on track.
If you've got your sights set on not only applying for a home loan but securing the best possible mortgage rates, you'll need to do whatever possible to better your chances. Here are four areas of your personal finances you might want to take a closer look at before you approach a lender.
1. Pay back anything you already owe
One area any lender will be keen to look at is how much you already owe. Whether it's through personal loans or credit cards, if you've got existing debts, this won't reflect well on your individual financial situation.
Figures from the Australian Bureau of Statistics (ABS) show that housing accounted for 75 per cent of all debt across the nation in 2013, but there are other key areas where people tend to owe money. Credit card debt is one of the most common, as 53 per cent of Australian adults owed money to their provider back in 2011-12.
The ABS also revealed the extent of vehicle loan debt throughout the nation. This has steadily increased over recent years, rising from $18,800 in 2003-14 to $19,500 in 2011-12.
No matter who you owe money to, it's a good idea to repay them before signing up for a home loan. This will increase your borrowing power and make you appear a more attractive prospect to lenders, often opening up better mortgage rates in the long run.
2. Put a regular savings plan in place
Lenders like to know you take your personal finances seriously, which is why you'll need to demonstrate an ability to save. For many Australians, this might not be something that comes naturally, but making cutbacks will ultimately make it easier to take those first steps onto the property ladder.
The CommBank Common Cents Report shows there's a new generation of savvy savers emerging, which could bode well for the property market in the long run. The research showed that two-thirds of Australian children prefer saving to spending, while 49 per cent believe it's important to save for the things they need.
The challenge now is for the current generation of homebuyers to feel the same, which could be just what they need to get their home mortgage approved. Lenders will look at your existing accounts and how much money you've put into them over the years, so establishing a sound saving schedule is crucial.
3. Build yourself a decent deposit
Another area to seriously look at is the size of your deposit. In the majority of cases, the more money you have set aside, the more likely you are to have your home loan approved. The Australian Investments and Securities Commission (ASIC) recommends aiming for at least 20 per cent of the property's purchase price to put yourself in the best possible position.
There's another benefit to having a more substantial deposit, as you'll be able to avoid the need to pay lenders' mortgage insurance, ASIC advises. This can make a significant dent in your savings when you come to buy your first home, but can be avoided if you put a little extra cash into your deposit.
4. Check your credit file
One of the key pieces of information any lender will look at is your credit history. There are various ways of checking this yourself, and it could be a major benefit when you approach a mortgage lender.
If there are any inaccuracies on your file, then it could negatively impact your chances of being approved. In the event you do notice that anything is wrong, make sure you tell your financial provider as soon as possible, and provide the necessary evidence for them to rectify it.
Even the slightest glitch could stand in the way of you owning your own home, so it's worth doing a bit of legwork before approaching a lender. It's much better than being caught out on the day, plus it will mean you can be aware of which areas might let you down when it comes to your application.
Let us help you find a home loan
Once you're confident you are in a good position to make your application, then why not give us a call? We're here to offer a range of home loans that should see you getting on the ladder sooner rather than later.
Speak to our dedicated team of experts, who will be able to let you know which products and interest rates are available and suited to your needs.