How to be the ideal home loan candidate

Applying for a home loan can be daunting, but there are plenty of ways to make yourself an attractive applicant. If you’re realistic, prepared and ready to put in the hard yards, your dream home could be closer than you realise.

After working full-time in the finance industry, Leah Michael, 33, and her husband recently acquired a home loan for their first property in Sydney, NSW. Here is her firsthand tried and tested experience to help get your loan approved.

Shop around

“My bank offered a number of loan products, but I wanted to be sure I wasn't missing out on any other great deals elsewhere. I researched on financial comparison websites and found a suitable loan product that was perfect for us.”

Experience counts

“We didn’t know anyone personally who could assist us, apart from our friends who have gone through the home loan process, but we made a few phone calls to some of the lenders we had shortlisted and settled on one that not only gave us a good product and rate, but which had great service and information. It's invaluable finding an experienced lender who can guide you through everything and who is happy to answer any questions, no matter how silly or small you think they may be.”

Remember: not all experiences are the same

“Some friends of ours have experienced lengthy loan approvals, as well as other hurdles such as processing delays, but for us the progression was quite easy. We came to our lender well-prepared, with all the paperwork to support the loan application such as evidence of income (payslips and group certificates), bank statements and credit card statements."

"The bank needs these documents to make suitability assessments and ensure those of us applying for loans have the ability to repay them. These documents also back up the information a person puts on their application. Without evidence of your income position, you could state on your application that you earn a million dollars a year. Similarly, your bank statements will show your saving ability and expenditure patterns, which will be taken into consideration for whether you’ll be in a position to manage a debt of a certain size."

"We also made sure we asked the right questions at the start of the process, so we could remain informed and on track through the entire experience. We wanted to know how long the approval turnaround time was, what information or paperwork they needed from us and what would happen after we were approved."

Make yourself an attractive applicant

“The more prepared with your finances you are, the better. We also made sure we were accommodating to what the lender required in order to help us get approved. What’s more, our bank had an affordability calculator available online, so even before we applied for our loan, we worked out how roughly much we could borrow (the calculator only provides a guide) and made sure it fit within our budget.

"We used this as a jumping off point to ensure we weren’t going through the whole application process and getting our hopes up if we couldn’t afford a new home in the price range we ideally wanted. We had enquired a few years back and it turned out we needed to save more money for our deposit and stamp duty, so it was back to the drawing board.

"We were glad we didn’t proceed with a full application at that stage, otherwise, it would have been recorded on our credit file, and the more enquiries you have can also potentially look unappealing as a future loan candidate."

Keep it consistent

“This might just be the most important thing: make sure you have consistent income and stable employment, demonstrate an ability to meet your new future repayments (whether that be entirely from savings or factoring in how you have conducted your rent), pay all of your bills and debts on time – and if you can, do one better and try to close off your credit cards entirely as banks consider having a credit card to technically be debt.”

"It will also bode well at application time to keep your bank accounts neat and tidy. Don’t operate a million messy accounts all on the go at once – you will shave off a lot of loan processing time if your finances are easy to keep track of.”

Have a financial plan in place

“We made sure from the outset we didn’t purchase anything that would mean we'd be living pay-to-pay. There are always unexpected expenses that will pop up when owning a house, so we made sure we could have the flexibility in our budget to put more than the minimum repayment onto the loan.

"By adding a couple of hundred dollars more than that minimum, we save interest and pay off our home loan sooner, or alternatively if we need that money back in an emergency we know we have some savings there. It was essential for us that our home loan product allowed us to do this, so we made sure we found one with a redraw or offset facility.”

Expect the unexpected

“It’s best to do your budget based on a worst-case scenario – interest rates might be low now, but they may not be forever, so make sure you give yourself breathing room with your repayments, just in case. Interest charges change and it could be a while before you feel like you’re making a dent, so buckle up for the long-haul. There will also be a lot more expenses to consider once you own your own home, so make sure you factor this into your budget."

Be future ready

“Now that all is said and done, the scariest part is looking at our account and seeing our looming debt front and centre. It’s a pretty commanding sight considering it will be there in some way shape or form for the next 30 years.

"No one can foresee the future, but we made sure before getting ourselves into this that we worked out how we would handle repayments if we were to start a family or one of us got sick.”

"In saying that, it’s also motivating, as it holds me accountable from making any meaningless purchases and has taught me to be creative with our budget and to live long-term instead of short-term.

This article is brought to you by HSBC.

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