Improving Your Mortgage Application
The coronavirus pandemic has shaken up many factors affecting the Australian property market.
The cash rate is currently its lowest point at 0.25% as of the 1st of October 2020 and many government cash benefit programs such as the First Home Buyers Assistance scheme have been implemented.
Factors such as these have generally reduced interest rates across the market and there are many opportunities for first or second home buyers and investors to seek out more mortgages that work for their financial situation.
These low rates however, mean that banks are looking more closely at applications to determine the financial capacity of borrowers to take out substantial home loans with similar circumstances occurring in 2018, where 40% of First Home Buyer applications were denied by financial institutions due to a lack of financial capability.
There are many different methods for improving your mortgage application…
Stay within your limits for your Mortgage Application
Keep within a realistic price range for your mortgage.
While the market has increased competition amongst lenders for applicants, they are still legally obliged to administer home loans in a responsible manner and will not give out mortgages they know you cannot afford.
Sit down with a mortgage broker or an advisor to go over your income and expenses.
In doing this you will be able to establish a realistic borrowing capacity that can compensate for various other life expenses.
Reduce unnecessary expenses prior to your Mortgage Application
Banks will utilise your statements to determine how often you are spending.
Substantial amounts of discretionary expenses such as ‘Afterpay’ and other short-term loans, frequent restaurant visits and large amounts of entertainment spending that can’t be justified by positive cash flows can portray poor financial management to your lenders.
In the six months prior to applying for a mortgage, ensure you have established a budget that can indicate to lenders that you are capable of reducing non-essential expenses and saving.
Demonstrate Financial Discipline
Indicate to lenders that you have the ability to save and pay back lenders and suppliers on time.
For example, if you are saving $1,000 per month and paying back another $1,000 in rent in a consistent and timely manner, it can show that you have the capacity for a mortgage repayment of up to $2,000per month.
Maintain your current employment before your mortgage application
Don’t switch jobs anytime soon.
Changing between jobs prior to a mortgage application can indicate uncertainty and instability to your lender and in most cases, lenders prefer that you have been with the same employer for a least six months prior to your application (unless you have started a new job in the same industry).
Lenders generally acknowledge this continuity provided you have worked for at least two years in that particular industry.
In a nutshell, lenders want to ensure that they are administering home loans to borrowers who show that they are financially capable.
For more information on improving your mortgage application speak to an experienced Mortgage Broker or Financial Professional.