Buying your first home? – What do Banks & Lenders Consider?
Want To Buy a Home – What do Banks and Lenders
There are a number of factors a lender will consider
when you ask for a home loan.
Knowing what they are looking for can increase your
chances of being approved.
To qualify for any home loan you must have a deposit.
Some Banks and Lenders will consider borrowers with a 5 per cent deposit, a
number are now looking for a minimum of 10 per cent. However, it is important
to recognise that with a minimum deposit, loans will only be offered to clients
considered to be a very safe prospect.
In addition you will need to have saved an amount to
other costs involved in purchasing a property and taking
out a loan, such as lender’s mortgage insurance, government stamp duties and
For your loan application to go ahead, the mortgage
will also have to approve the application and be willing to
provide the lender with insurance. Lender’s mortgage insurance companies
require a minimum of six months of ‘financials’, that is, bank statements, pay
slips or any other proof of income documents.
With most mainstream lenders, you also need to be able
to show a pattern of genuine saving. Often described as ‘
hurt money‘, it
is often required to be at least 3 to 5 per cent of the value of the property.
This has to be money you (and your partner) have earned and saved, not a gift
or other financial windfall.
Applicants with a higher disposable income are
more likely to have their home loan application approved. The maximum loan
repayment is often set as a percentage of your income. The type of property,
its location and its condition will all be evaluated when assessing your loan
application. Comparable sales in the area are also investigated.
Lenders also consider your employment history.
Temporary, probational positions or a volatile work history are not generally
well regarded and may affect the outcome of your loan application.
The lender will also conduct a credit
with a credit bureau such as Veda Advantage. Your
credit history is a record, within the last five years, of any defaults,
substantially late payments, seriously overdue or outstanding debts, records of
inquiries and bankruptcy. This can often be a major determining factor in the
success of a home loan application as lenders can flatly reject an application
based on a poor credit history.
This article was written by Mrs. Mortgage – Jennifer
Schelbert and posted on homeown.com. Jennifer is a director of Mrs. Mortgage
Pty Ltd, a licensee for Choice Aggregation Services, and a full member of the
Mortgage Finance Association of Australia & COSL. Phone 03 9391 2456.