It’s no secret that it is more challenging to secure a home loan right now than in years gone past. In particular, the global pandemic has created significant financial challenges for many Australians – from changes in employment status through to a general reduction in income. This in turn has made the home loan process more difficult as banks and other lending institutions can take a conservative approach to the amounts they are willing to lend. Here are some important factors to be aware of when applying for a new loan, and what you can do to improve your chances of approval:

(1)  Employment status

A lending institution is less likely to approve a loan if you have moved roles a number of times recently, particularly in casual or contracting jobs. If you have been in your current job for less than six months, or you have been self-employed for less than two years, the bank may also view this unfavourably. You could improve your chances of approval by being employed in a permanent role for 6-12 months prior to applying for a loan.

(2)  Income levels and ability to repay the loan

If you have income that fluctuates significantly on a month-to-month basis, or if you are seeking to borrow an amount that is too close to the lending limits, your lender may be reluctant to approve a loan. Lenders will be closely analysing your ability to repay a loan, so the ability to demonstrate a regular income is vital. It’s worthwhile being realistic about the amount you can afford to borrow before approaching a lender.

(3)  Credit history and expenses

As part of the approval process, lenders will also take a close look at your credit history and recent expenses. Frequent visits to Dan Murphys or gambling websites may not be viewed well, as it could indicate a problem that impacts on your ability to repay the loan. One approach is to ‘spring clean’ your expenses in the three months prior to a loan application, cutting down on unnecessary purchases. Also consider reducing your credit card limits, as these are considered as liabilities in the loan application. If you are in a position to pay loan instalments on time (even for small home items), this ensures your credit history sits nicely.

(4)  Size of deposit

Obviously the larger your initial contribution (ie. deposit), the less you need to borrow, therefore reducing the risk in the eyes of a lender. Larger deposits can also help you avoid expenses such as Mortgage Lenders Insurance, so it could be worth saving up that little extra prior to purchase.

We hope you found these tips useful, and we wish you all the best on your property journey.