That means getting your finances sorted – a credit card nip and tuck and a plumped-up savings history – so you look the best you can in the bank’s eyes. Put yourself in their shoes. Would you lend to you? Now is the time to start the process, even though obtaining the loan may be well into the future. Gambler or not, let’s try and swing those home loan odds in your favour.
Here are some tips to improve your chances of getting a mortgage
Have a written budget:
In order to ascertain if you have the ability to repay a mortgage, a lender will want to know certain details of your budget. Having it all written down clearly will demonstrate that you are serious and can “stick to a plan”. There are plenty of online budget planner calculators to help you – so download several months’ worth of your bank statements, take a good hard look at them and work out where your money goes – then start a new, written budget from there!
And the good news about budgets is that even financial support providers encourage you to be realistic. Sure, you probably don’t need to highlight to banks that you have cappuccino reserves, but budgeting in some “fun money” means you’re more likely to stick to a budget – rather than deviate from it.
Try to accumulate a savings history:
Now that you have done your budget and, no doubt, tweaked a few things, it’s time to start saving on a regular basis. Lenders like to see that you have the discipline needed to make regular savings over a certain time period. A demonstrated savings pattern will hold you in good stead and give you an upper hand in the mortgage approval stakes. It’s easier said than done of course – but it will be a great future-mortgage training exercise. In addition to showing your savings history to improve your chances of getting a home loan, if you shop around for a savings account with a good interest rate, you can save a little extra cash.
Check your credit rating:
Have you ever defaulted on a loan, forgotten to pay a bill or had an application for credit declined? It’s not a deal-breaker but it does help to know what information is on your credit history. It’s certainly something that the bank will check, so clean up your credit history now so banks see you in the best shape possible. A clean credit rating is another tick in the box in increasing your odds of being approved for a home loan. To find out more, check your credit history.
Keeping a clean credit rating
|Meet all of your payment obligations||This means ensuring you pay off your credit card, any higher purchases, or other loan repayments.|
|Seek help if you can’t meet repayments||If you are struggling to pay off your debts, seek help as soon as possible, such as from a financial advisor or talking to the lender.|
|Check your credit record regularly||Knowing what is on your credit record means you can avoid finding out about any skeletons in the closet at the same time as the bank does.|
Try to have a stable employment history:
Stability in the workforce immediately eases a lender’s jitters over your ability to repay a loan. If you have changed employment frequently – or recently – it won’t necessarily be a deal breaker, but be prepared to explain why. The lender might request a few recent payslips or an annual tax return.
Prune your personal debt:
Any personal debt you have will impact the amount the bank will lend you for a home. Pay off car and personal loans as much as possible before applying for a mortgage. And, a word of warning on credit cards, if you owe money on them, it goes without saying to pay off as much as you can before the “big day”. However, be mindful that the credit card limit may work against you. Say, for instance, you have two cards with a limit of $10,000 on each. Even if you don’t owe a cent on either card, the bank will view that as a possible debt of $20,000 you may have to repay in the future. Hence, they may not be as willing to lend as much on a home loan if the figures don’t add up on paper. How do you get around this? Close any credit card accounts you don’t need and lower the limit on any others.
Having a home loan deposit
Now for the obvious step when it comes to improving the chances of getting a home loan – have a healthy deposit to impress the lender with. The more money you can front up with, the less you have to borrow. To be safe, have a 20% if possible and you won’t get caught in the RBNZ high LVR lending restrictions. Saving a deposit is a struggle but don’t get despondent because it’s well worth it in the end.
Increasing the odds of getting a home loan might sound like a laborious task. But when you finally sign on the dotted line and move into your own home, you’ll be glad you did everything you could to put the odds in your favour.