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The Perfect Home Loan Application
Most people have no idea if they qualify for a home loan, which usually leads to some nasty surprises when submitting a home loan application and getting declined. This usually happens after people have found a home they want and are trying to sort out their finance, only to face rejection.
But enough 'doom and gloom' and lets find out how to have the perfect home loan application so that the banks give you that 'approved stamp'. The easiest way is to break it down into the different categories that are reviewed:
Number of applicants
Credit conduct
Make sure that you show exactly how many people are going to be living in the home. Even if you are a family with only one person making an income you still need to put yourself, your partner and any children you have on the application. The reason for this is that the banks have a cost per adult/child that they account for on your application and you need to be able to afford this, which leads to the next category of income.
Income is money coming into your bank account. Cash does not count! There needs to be proof of money coming into your account. The bank wants to see a stable income, which can be translated into 6 months of a wage or salary. If you are self-employed you need to be able to present 2 years of financials for the bank to feel comfortable to class your income as 'stable'. Your income needs to be able to cover your family costs, the home loan as well as your liabilities.
As an average the banks will want to see that you have at least 10% of the value of the property in savings.
example: You want to purchase a $400,000 property. The bank wants to see at least $40,000 in savings.
An asset is something you own that has value. Assets include savings, property, motor vehicles, jewellery, superannuation and anything else of value. Assets give your application a little more security because the banks see that if your situation was to change in the future you could sell your assets to allow you continue with your home loan repayments. Please note that the biggest and safest asset according to the bank will always be property.
Liabilities are usually what 'kill' a home loan application. Liabilities are existing loans or debts that you already have. This include credit cards, car loans, personal loans and retail debts. Please make sure that before you even think about doing a home loan application that the value of your assets is greater than your liabilities.
So as an example if you own a car that is worth $15,000 make sure that your car loan is less than this, or even better paid off!
Credit Conduct
This is your conduct on paying debt. We all have a credit file and the banks will look at it when reviewing your application. If you do not pay your debts there will be marks on your credit file against your name and believe me this almost an immediate decline to your home loan application. However if your credit file shows that you pay your debts the banks will 'love you'. As long as you can afford the home loan repayments and your cost of living the bank will approve your application.
Summing up the Perfect Home Loan application
Have a stable income
Have savings
Have a higher value of assets to liabilities
Keep your credit clean
All the best in achieving home ownership.