6 Tips for Success when Applying for a Home Loan in Tasmania

Applying for a home loan can be compared to applying for a new job. Just like preparing for a job interview, you want to be prepared when it comes to applying for a mortgage by presenting the lender with the best possible scenario.

In this blog, we talk offer six tips to help you with the home loan application process.

Tip 1 - Maintain a Healthy Credit Score

Getting a home loan is a long-term commitment and you will need to prove to the lender that you will be able to repay your home loan. So, be prepared to provide full disclosure of your financial position. This will include your income sources, living expenses, current loan repayments and any other financial commitments.

Part of looking at your overall financial position will include completing a comprehensive review your credit file. The lender wants to make sure you are a 'safe bet' so your credit report should demonstrate a clear and stable history.

What details does your credit report include?

Your credit report includes details on:

• the number of enquires you have made for credit
• the consumer loans and accounts you hold
• any current or past defaults you have
• information on personal insolvencies and court actions.

Tips to maintaining a great credit score

1. Avoid buy now pay later, pay day loans and other short-term lending

These types of loans can impact your credit rating and may demonstrate to a credit provider that you can't manage on your income. Some lenders will not approve a loan if you have applied with a short-term lender in the previous six months.

2. Make sure you pay your credit cards, personal loans, car loans and other debts on time.

It's easy enough to do but missed payments will impact on your score and if you miss more than one, this may result in your application being declined.

3. Don't apply for pre-approval too early or apply to multiple lenders at once.

This is where working with a mortgage broker is a great idea. Mortgage brokers can apply to multiple credit providers on your behalf and it won't affect your credit rating.

How can I find out my credit score?

As soon as you have given signed consent, your mortgage broker can request your credit history and provide you with details. Alternatively, you can complete your own check for free through an online provider such as Equifax.

Is it too late if I have a bad credit score?

No, it's not too late. There are lenders out there that will still offer a home loan to credit impaired applicants, but it comes at a cost, sometimes at a rate 1/3 higher than what would be achievable elsewhere. Alternatively, spend six to twelve months paying off existing debt, reduce your credit card limit and close off unnecessary accounts.

By speaking with a home loan specialist at Finance Brokers Tasmania, they can guide you on your options and help you find the best solution for your financial situation.

Tip 2 - Avoid a change in your Employment

When applying for a home loan, most lenders want to see consistency in your income as they need to be sure that you can afford your mortgage repayments. Generally speaking, lenders like to see that:

• you have been in your current role for at least six months and that you have passed your probation period
• you are permanent part time rather than casual as your income can be taken over 52 weeks rather than 46 if you are casual
• if you are self-employed, you have been in business for at least two years

If you have just started a new job, there is still hope. Talk to us as there are lenders who will look at your home loan application based on your individual financial situation and your previous employment history.

What do I have to provide to confirm my income?

This will vary depending on the relevant credit provider however, you will generally be required to provide (as applicable):

• two most recent pay slips
• tax returns and notice of assessment
• bank account statements showing salary credits and genuine savings
• savings account statements showing investment income
• government income statements
• rental agreement showing agreed rental income

What about self employed applicants?

This one really does depend on the lender. You may be required to provide:

• PAYG pay slips
• BAS statements and other business financials and
• Individual tax returns

Finance Brokers Tasmania have years of experience helping self employed applicants successfully apply for home loans so make sure you talk to us before you deal directly with a bank or other financial institutions.

Tip 3 - Keep your expenses in check because the lender will!

Home loans are a long-term commitment and with the dramatic increase in the cost of buying a home, lenders are paying particular attention to your living expenses.

It's time to tighten your budget! Reducing unnecessary monthly living expenses will go some way to increasing your home loan borrowing power. Six months before applying, we recommend that you take some time looking at your bank account and credit card statements to see where your money is going. You may be shocked! Limit spending in areas such as:

• buy now pay later such as Afterpay and Zippay
• monthly subscriptions such as Netflix and Amazon
• Uber Eats and eating out at restaurants
• Gambling

How will the bank know what I spend and where?

You will need to provide access to two to three months of bank statements and credit card statements which will be cross-checked to verify your cost of living expenses and your current loan repayments.

Tip 4 - Keep credit card limits low

Not only are interest rates high on credit cards, but they severely impact on your borrowing capacity. When applying for a home loan, the lender will consider the limit on your card, not the amount owing. So, if you have a credit card with a limit of $20,000, the lender will assume this is how much debt you owe. As you can imagine, this significantly impacts your ability to borrow. With that in mind, keep the limit on your cards low or close them completely to assist in your home loan application.

Tip 5 - Save, Save, Save!

Prospective lenders like to see a proven history of saving. While it is nice if Nanna wants to give you a gift to help towards the purchase of your first home, the lender should still be able to see a good savings practices.

It's taking forever, how much deposit do I need?

Generally, a deposit of at least 20% is recommended however, you may be able to borrow as much as 95% of the purchase price.

If you are borrowing over 80% of the value of the home, you will need to meet provider's lending criteria and will be required to pay lenders mortgage insurance. This is a one-off premium which is calculated on the loan amount and protects the lender in the even that you can't meet your mortgage repayments.

Don't forget about the other costs associated with a home loan!

There are other fees that you will need to consider. These may include stamp duty, solicitor fees, loan establishment fees and a property valuation. To read more about the other costs associated with taking out home loans, read our blog here

Tip 6 - Talk to the team at Finance Brokers of Tasmania

No matter where you are in your home loan search, call us for a chat. We can look at your current financial situation, offer advice on your borrowing power and discuss the latest government grants and schemes available to you.

When you are ready, we can compare home loans and help you through the loan application process.

Be patient! It may be a 6- or 12-month process depending on where you are in process but it will be worth it in the end.