First-time mortgage borrowers are tired of being told that these are the cheapest interest rates they will ever see. More important is how to ensure they can secure a loan. Here are my top tips:
1. Have a clear goal. Use online calculators to see what you need to save and how much the repayments will be.
2. Have a budget and a plan. You need to have a deposit and to reduce your weekly outgoings. You need to do this for at least six months.
3. Save a deposit. The bigger the better.
4. Show consistent savings. Lenders want to see evidence of good financial management, rather than windfalls. Use a separate savings account to make regular deposits and few withdrawals.
5. Have a stable and consistent income. Lenders are generally less comfortable lending to someone who has had numerous jobs or long gaps between employment.
6. Don’t switch careers. If you do change jobs, stay in the same field and show increased income. Apply for your mortgage before changing employers or starting a business.
7. Understand your budget. Lenders will want to know your gross income, and your financial and living expenses to gauge your disposable income.
8. Limit risk. Know that most lenders credit-score you to get an idea of how much risk you pose. So you must minimise credit inquiries, job changes and changes of address. Next year Australia will get a credit reporting system where creditors disclose late payments, not just defaults.
9. Stay put. Have a stable rental history and minimise moving houses or apartments.
10. Lower your limits on credit cards. Every $1 of credit-card limit stops you from borrowing up to $5 of home loan. Reduce credit cards to one, and reduce that card’s limit to what you use. Pay off and cancel the credit card if you can.
11. Card care. Stop applying for credit or store cards, for it suggests you live outside your means.
12. Nothing’s free. Don’t take ”interest-free period” finance offered by stores.
13. Ensure your bank accounts are in order. No late payments, over-limits or overdraws. Lenders usually check or require account statements for the past three to six months when assessing your application.
14. Know your credit report. Most lenders credit-score you on the Veda system, which shows your current and past credit activity. You can buy your Veda credit file at mycreditfile.com.au.
15. Check your tax. If you’re self-employed, get your taxes done before applying and make sure there’s no tax owing on your ATO account.
16. Reduce overheads. Fancy car leases, big smartphone plans and cable TV charges can reduce your net income and affect your serviceability.
17. Go home. Move in with your parents if you can, but only if you’re going to save.
18. Talk to a broker. If you’re worried about your credit score and serviceability, a broker can get you prepared pre-application.
19. Once is enough. Don’t apply for too many mortgages. This affects your credit scoring.
20. Be truthful. Don’t lie to lenders, especially about other loans or credit cards.
The basics always apply to mortgages.
You need a deposit that is big enough to have 20 per cent equity and cover stamp duty and conveyancing, and you need to show that you can service the loan.
This is a 25-year debt you are taking on, so take your time and get your preparation right.