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What to do BEFORE you get a home loan

Planning to purchase a property in the near future?

Here’s what you can do today to optimise your chances of being approved for a home loan down the track.

✅ Do your research

It’s a good idea to do some research and start thinking about what kind of home loan may suit your needs.

If you like the idea of knowing exactly what your ongoing repayment will be so that you can budget for it, a fixed home loan may work for you.

However, keep in mind there’s talk of interest rates going down in 2024. Opting for a fixed rate loan means you won’t benefit from a drop in interest rates.

If you prefer to have flexibility and don’t mind the idea of your interest rate potentially fluctuating with any cash rate changes, a variable home loan may be more up your alley.

As a mortgage broker, we can explain the ins and outs of fixed versus variable mortgages, plus how you may benefit from interest-saving features such as offset accounts and redraw facilities.

✅ Clean up your credit rating

When you apply for a home loan, lenders look at your credit report.

If you don’t know much about this, your credit report includes a credit score – a value up to 1000 or 1200 depending on the credit reporting agency – which indicates how reliable you are as a borrower. It includes information about how you’ve managed any past or current loans or debts, as well as your repayment history.

You can get a free copy of your credit report every three months from the following credit reporting agencies:

If you notice something’s amiss, get in touch with the agency to sort it out promptly (find tips here).

And be proactive about keeping your credit report clean by:

  • Paying your bills on time;
  • Limiting applications for credit;
  • Paying off your credit card; and
  • Reducing your credit card limit.

✅ Domino your debts

Now’s a good time to pay off any debts where possible. That means knocking over any personal loans, car finance, outstanding credit card bills or other debts.

When assessing your home loan application, lenders will consider your income, expenses and existing debts, among other things. If you can show them that you can cover your existing debts with surplus money to cover the home loan repayments, it can enhance your credibility.

✅ Get busy saving

The bigger deposit you can save, the more attractive you’ll be as a borrower to lenders. Usually, it’s best to aim to save 20% of the value of the property.

Having said that, there may be other ways to get into the market if you don’t have a sizeable deposit saved. For example, some lenders will still accept borrowers with a deposit of 5%, provided they meet certain conditions.

Keep in mind if you borrow more than 80% of the property’s value, you may need to pay Lenders’ Mortgage Insurance.

✅ Avoid switching jobs

Employment stability is important to lenders. They want to know that as a borrower, you have healthy spending habits, a solid credit history and long-term secure employment.

Moral of the story? Try not to switch jobs if you are planning to buy a property in the foreseeable future.

✅ Get the ball rolling

If you’d like to talk through the first steps of getting a mortgage, we’re here to help.

We can organise pre-approval on your finance so that you can start shopping for the right property. Get in touch today.

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