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February 2016

Buying your first home? – What do Banks & Lenders Consider?

Want To Buy a Home – What do Banks and Lenders Consider?

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 cover other costs involved in purchasing a property and taking out a loan, such as lender’s mortgage insurance, government stamp duties and conveyancing fees.

For your loan application to go ahead, the mortgage insurer 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 reference check 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.