How to get ahead despite mortgage clampdown
IF YOU have been shopping around for a home loan over the past few years and found the questions and requests for statements are down to the last cent, you aren't alone.
Many first home buyers have bemoaned the banks' 'credit squeeze'. The recent Royal Commission into financial services sector misconduct has only heightened their anxiety, as the findings criticised banks for being too relaxed in approving loans and being delinquent in their duty as responsible lenders.
Lenders are paying attention to one's credit score and discretionary spending such as buying goods and services on "buy now, pay later" apps like AfterPay and ZipPay, as well as services like Uber Eats.
Lenders are also assuming the worst-case scenario when it comes to credit cards, especially if you have missed payments or are nearly "maxed out" - eg. are close to approaching your credit limit.
One of the country's fastest growing businesses, Savvy Finance, has offered its tips on how you can get ahead with your home loan approval despite the lending clampdown.
Pay down your credit cards and lower your limits
Since credit reporting agencies are taking on more data about credit cards, your priority is to pay off credit cards as soon as you're able. Then, to ensure you don't overspend, reduce your credit limits, or even cancel credit cards you don't need or use.
Buy a house within your means
Once you have a good handle on your debts, you should do the sums. You might have your heart set on a 'dream home' but you should temper your expectations when it comes to mortgage repayments.
"Using a mortgage repayment calculator well before you even look at the market will save you a lot of heartache," says Bill Tsouvalas, CEO of Savvy.
"You'll know how much you'll be paying each month and it will save you from mortgage stress. Make sure you can live comfortably in a home you can afford instead of a 'dream' that has you scraping by."
Restrict discretionary spending
Though the commentators howl about "you can't have your smashed avo and home loan too" there is some truth to it.
Review your discretionary spending - such as gym memberships you don't use, the extra streaming service, frequent use of "buy now, pay later" apps - and get rid of anything that will harm your application at least six months before you approach lenders.
Funnel the savings into a deposit
With your belt tightened, you can funnel your savings into a deposit fund. Ideally, borrowers should have at least a 20 per cent deposit for their home, as it foregoes paying for lenders' mortgage insurance.
The more 'skin' you have in the game, the lower risk it is for the bank. It also shows lenders you're capable of handling repayments on a regular basis.
Check your credit history
Even if you think you have a great credit history, it could have lingering defaults and mistakes on it. It's up to you to clear up any errors, as they could seriously harm your chances of getting approved for a mortgage.
Best of all, you can get a report each year for free. MoneySmart has a guide to getting your own, here.
Don't apply too often
Applications for credit show up on your credit history; lenders will assume the worst and assume you have applied and been rejected.
"Using an experienced broker is the best thing you can do when buying a home," says Mr Tsouvalas.
"They will only apply on your behalf once they've looked at the right loan from their lending panel.
"Instead of choosing from a couple of options, brokers can open your home loan up to dozens of lenders competing for your business instead. That means you save in the long run."