One of the most stressful and difficult parts of purchasing a home is saving your initial deposit and securing a suitable home loan. Ultimately, it doesn’t matter whether you are buying in WA or anywhere else for that matter – if you are interested in a low-deposit home loan, there are certain steps you can take to ensure you boost your chances of approval.
Applying for a home loan has a lot to do with your personal preparation. Presentation and organisation are two very important qualities to exhibit when applying for a home loan to greater your chance of success. Therefore, it is very important to be aware of the below points before visiting your financial institution:
In Australia there are some minimal requirements you should meet before applying for a home loan. These include:
- Being at least 18 years of age,
- Having a good credit rating,
- Holding an Australian or New Zealand citizenship, permanent residency or a 457 Visa,
- Must live in Australia,
- Meet minimum income requirements,
- Not be undischarged bankrupt or unemployed.
Clear credit history
Having a clear credit history is of key importance when applying for a home loan. It involves taking a look at your credit file and ensuring that you have paid off all of your bills. This can include anything from rent to personal loans and any other debts that you have accumulated. Furthermore, it is important that these bills were paid on time, every time. Whatever financial institution you choose to visit, they will be sure to check your credit history as a matter of protocol so it is best you check it first and ensure it is without blemish. This allows you a chance to correct any errors, whilst preparing a good explanation for any financial wrongdoings.
Before you even think about applying for a loan it is best to ensure you have saved five per cent of the purchase price. It is very comforting for financial institutions to see evidence of regular savings so it is best to ensure you take this into considering before applying. Regular savings will also assist you in developing good habits – allowing you to save more. Understandably, the more you save, the bigger the deposit you can make, the easier it will be for you to secure a loan.
Have a written budget
In conjunction with clear evidence of saving, financial institutions also like to know how much money you spend and exactly what you spend it on. To prepare for this, it is important to put together a written budget noting all the purchases you typically make on a weekly or monthly basis. This should include everything from living and medical expenses to recreation and entertainment costs. Make sure the budget is comprehensive and realistic!
Stable employment and income
In relation to the minimal requirements in Australia, you need to have stable employment. In most cases this is defined by being employed in your current job for six to 12 months. It is also favourable if you intend to stay with that employer in the future.
Income comes into play if you only manage to save a five per cent deposit as this means you will be repaying a 95% loan, causing some concern for lenders. To ensure your loan gets approved you must ensure your serviceability ratio is perfect. This term refers to your ability (as a borrower) to meet loan repayments based on the borrower’s income. So keep saving!
If you are an applicant with many credit cards and personal loans you are going to struggle to get approved. Typically, people who have more than 7% of the purchase price in unsecured debts such as personal loans and credit cards, are often not approved. In conjunction with focusing on your savings, make it a priority to decrease any personal debt you hold. Another tip – reduce the credit limit on any loans and credit cards as you repay them – this will help you keep your debt in control moving forward.
Best of luck borrowers!