Applying for a home loan

Plan ahead

If you’re struggling with other loans or credit cards, lenders are likely to either apply less favourable mortgage terms, or avoid your loan application altogether. So before you start loan-hunting, make sure your financial house is in order. Don’t avoid credit card payments in favour of a bigger house deposit – that interest can be up to five times higher, and missed payments will count against you on your application.

It’s also sensible to consolidate your credit and store accounts to a single card. For every dollar in credit you have available (even if you don’t actually owe that money) through cards, lenders will reduce their offer by up to five dollars.

Research first and be conservative

Every time you apply for credit, that fact is noted on your individual credit report, so aim to make your first application your only one. That means first understanding your financial situation – how good (or bad) a lending risk you will appear to be on paper – and then finding the best loan for that analysis.

Try: Domain’s Home Loan Calculators

Provide everything

A home loan application can stretch to 10 pages and more. While a lot of it will look like rudimentary box-ticking, all of the information provided is considered.

Don’t leave things out or try to gloss over things that might look bad on paper – banks and lenders will find them out regardless. This applies in particular to all credit and store cards – many an application has been turned down because of an undeclared store card, even when the card was long forgotten and not in arrears.

At the same time, make sure all the positive and neutral stories in your credit history are also included – they give lenders greater reason to work with you. This could include long-since paid-off car and personal loans, as well as any evidence of sustained savings.

Also, remember to have all of your identification documentation and employment evidence ready. You’ll need the standard 100 points of identification that you’d need to open a bank account, as well as at least your two most recent pay slips to prove your income. A letter from your employer highlighting both income and length of employment is also useful. For self-employed borrowers, things are a little more onerous. Expect to be asked for copies of your past two tax returns and contact details of your accountant. Some lenders will ask for formal certified profit–loss statements.

Follow up

If things go wrong and the loan is not approved, be sure to follow up with the lender and the credit reporting body they have used. Being denied home finance once will impact on future applications, so it becomes even more important to have all the facts when applying for the next best opportunity.

Banks and mortgage providers are lending you hundreds of thousands of dollars for your home – they’re not going to do that without some extensive research into your ability to repay that debt under the agreed terms. There is no point trying to fight the systems they’ve set up and trust, but you can use that process to present yourself as honest, knowledgeable and passionate about the investment you’re making.

It won’t change the raw numbers, but it will help you to get the best deal that those figures will allow for.