The Australian dream of owning your house is alive and kicking, in spite of the downturn or property markets in recent times. Unfortunately many young people just don’t get the loan that they were expecting to get and their dreams come crashing down pretty quick. With a little bit of guidance and planning though, this can be avoided.
Getting a loan can be really easy if you have minimum debts and a good enough salary or income, but often limitations that you have place on yourself come as an obstacle to your getting the loan amount you need.
So how do you prepare yourself financially to get your dream house when you’re ready?
Below I will give a few tips based on my own experience and dealing with home loan brokers and banks and some basic criteria that they take into account while calculating how much they can allow you to take as a home loan.
Credit card
You probably didn’t put much thought into it when you got your first credit card or second credit card, but when it comes to taking loans out it matters. The higher your credit limits on your card, the lesser your loan taking capability.
Your car loan
Everybody has a car, but not everybody has a car loan, the lucky ones who don’t have a car loan will have a larger borrowing capacity and if you have a car loan, you have ongoing repayment’s and so your loan capacity becomes less, that means you will qualify only for a smaller loan depending on the amount of loan you took for the car or the size of the repayment amount/balance due.
Your Business income / or Salary wages
(2 years of proven income or Business activity statements etc.)
This is a tricky one, you could be earning substantial amounts of money being self-employed, but if you have not been earning it for at least two years and if you don’t have any documents to show the earned income like tax returns, declarations etc. Bas activity statements etc., you still might not qualify for a loan. Make sure you lodge those tax returns with your income declared and get activity statements lodged if you need too.
Some loan brokers and loan companies/banks might still qualify you with some documentation/proof for your self-employed income so it is best to check with your bank/broker and see what they need. If you have a fixed salary + other income (or self-employed), then these above conditions might also apply to you.
Children and expenses
Children have expenses education, nappies, food etc. and the bank realises this, so the more children you have or the more children you are looking after, the more your expenses you have and so you have less the loan taking capacity due to having these ongoing expenses.
Rental fridge / lease on cars
Many people like to take household items like fridge or the latest big screen smart TV on rental basis, but this could end up affecting your borrowing capacity du tot the ongoing repayments that you need to do. Similarly a car lease payment could also affect your borrowing capacity
Grocery & Household Expenses
When you call your bank to ask for a home loan, they will ask you your grocery and house expenses apart from your loan repayments and this could also affect your loan taking capacity if your expenses are too high. If you are spending too much money on these types of expenses, it means you have less money to manage repayments and therefore less capacity to get bigger loans.
Other investment property repayments and rent (For property investors)
So you are already in the investing game and have 1 or 2 investment properties, then this can affect your borrowing capacity. Obviously the bank will have their own valuation of your investment properties and if the market is down, then you will qualify for a smaller loan. If the rent you receiving is low due to a weak rental market, you loan capacity becomes lower.
You’re Weekly or fortnightly repayment’s amounts on these investment property loans also dictate your borrowing capacity for new loan.
Bank balance & Savings
If you have a bank balance or savings in your bank account, then this can work in your favour as this sometimes gives you brownie points in borrowing with some institutions. In fact in Australia there are some government savings schemes (first home saver account) that help you save to buy a house .If you can put up an initial deposit for your house from savings, you manage to reduce your repayments.
Your employment record
Being a permanent employee, a casual worker or a part time worker also plays a part in your loan process. Obviously if you’re permanent employee then there is perceived stability and so it holds good for a loan along with other factors. If you have been permanently/part time been employed for a long time (continuous) then that also is a plus when applying for a loan. Casual work status also qualifies but not as much as a permanent or part time job
Bad credit rating
If you have defaulted on your bills or got a court notice in relation to bills, then you could have a bad credit history and things could get difficulty for getting a loan. You can check with Veda advantage for free to check your credit report.
Buying your first home is both exciting and nerve-wracking and its best to approach this with your best foot forward, which means good planning.
It is a major decision that takes planning and research, and careful budgeting. Good luck!
Some other post by me
- http://www.australianpropertymarket.com.au/australia/pay-off-your-home-loan-in-6-years-offset-accounts-deconstructed/
- http://www.australianpropertymarket.com.au/australia/property-investment-and-depreciation-schedules-deduction-calculations/
- http://www.australianpropertymarket.com.au/real-estate/is-it-time-to-lock-in-your-home-loan-rate/
- http://www.australianpropertymarket.com.au/australia/reverse-mortgages-vs-baby-boomers/
It’s recommended that you call the bank at least 6 months prior to getting a loan, which could help you plan better in applying for your first loan
What information bank will ask you?
When you call the bank or consult mortgage broker, keep this records or information ready for the customer service consultant so that you can go through the loan process quicker.
- All your loan repayments amounts (fortnightly or weekly) car loans, if existing mortgage, lease, rental etc
- Rent you receive if you got a investment property (value of property)
- Weekly Household expenses
- How many credit cards (limit of those credit cards)
- You’re Gross and net income amounts (for you and partner)
- Any other income (proof of business earnings)
