Are you an attractive home loan customer?

As a property and finance commentator and owner of Melbourne-based Investors Choice Mortgages, Jane Slack-Smith knows a thing or two when it comes to first-home buyers.

“When making your first application for a home loan, you need to remember it all comes down to four things: what you earn, what you owe, what your past looks like and what you are buying,” she says. “These four factors will decide your worth as a client.”

According to Slack-Smith, lenders essentially look at you and the risk you pose to them. “Then they look at the asset you are buying to see if there’s anything risky about that,” she says.

So how do you position yourself as an ideal borrower? Here are a few ways.

Borrowing capacity

Brisbane-based business-development manager Scott Beattie of Cube Central says that it’s important to adequately determine your borrowing capacity – and this means being realistic. “Lenders not only look at your income, but also consider other debts, dependent children and the type and/or length of your employment,” he says.

So if you want to be an attractive first home loan customer, your best bet is to be wise about the amount you’re borrowing, the loan terms and any situational setbacks that may occur.

Start saving

According to Beattie, first-home buyers should have more than three months of savings for the ancillary costs of buying a home, which include stamp duty, legal, building and pest-inspection fees.

“I normally suggest that borrowers allow at least $3000 in costs for a first home,” he says. In addition, he says a low loan-to-value ratio (LVR) can put you in good stead for your home loan. “The lower the LVR, usually the more attractive the application is to a lender,” he says.

Credit history

Mortgage Choice’s head of corporate affairs Jessica Darnbrough says that another way you can shape up your position is to obtain a copy of your personal credit file. “If you have a less-than-attractive credit history, it pays to get a copy of your credit file,” she says. “Companies such as Veda can provide you with your credit file or credit report so that you can see what black marks (if any) are against your name, and you can work on improving them.”

However, even if your credit history is less than ideal, Slack-Smith says you may still be on track for loan approval, provided that you are open and honest with the lender about your situation.

“Don’t try to hide any credit defaults, because the lender will see it,” she says. “Just make sure that your mortgage broker knows about it so that they can find a lender who will be able to consider that default and still get you a loan.”

Essentially, it comes down to being open and honest, telling why and how this happened and showing why it won’t happen again.

Examine your finance habits

Once you have cleaned up your credit report, it pays to start afresh. Put practices in place that will help strengthen your financial history and establish you as a good customer. According to Darnbrough, these practices can include having a regular savings plan, paying bills on time and closing unnecessary bank accounts and lines of credit.

Get a broker

Finally, if you are unsure about the whole loan-approval process, Beattie says a good mortgage broker can help get things sorted. “Most brokers are happy to have a look at your circumstances, even if you have been declined by another lender,” he says.

Buying a first home is – and should be – an exciting experience. And with the right preparation and research, you’ll be approved in no time.