Before applying for a home loan in Australia, it’s important to be well-informed. While there are some things that may appear obvious, we’ve included a few topics here that we see trip people up time after time, causing them to have to delay their plans, or pay more for their home loan. Beyond the basic information like knowing your loan types, how much deposit you will need and figuring out how much you can borrow, here are some crucial things to consider before applying for a home loan that can have a major impact on whether or not you will be approved:
1. Credit Score
What is a credit score?
Your credit score affects your ability to secure a loan (home loan, car loan, business loan etc.) and may impact the interest rates that are offered. A credit score reflects your creditworthiness, indicating to lenders the level of risk involved in lending to you. You can read more about your credit rating here.
How do I get a credit score?
Your credit score is derived from your financial history and your capacity to repay debts. Any time you apply for a credit card or any type of loan facility, it will be recorded on your credit file – even if you don’t go ahead or get approved for the finance.
Essentially, your credit score distills all the information in your credit report into a single number.
What you need to know about your credit score BEFORE you apply for a home loan: Check your credit report and rectify any errors. Aim for a score above 600 for better options.
How can I check my credit score?
There are three main credit reporting organisations in Australia: Equifax, Experian and illion. You can request access to your credit report by visiting their websites.
They are required by law to give you access to your credit report once every three months at no charge. In addition, you can request a free copy of your credit report if you’ve been refused credit in the previous three months. You can also request a copy of your credit report at any other time; however, you may be charged a fee for this.
Each organisation may have different information about you, so you may need to request your credit report from each in order to get a full picture of your credit worthiness. Your mortgage broker should also be able to easily help obtain a copy of your credit file, and will usually need to include this information as a part of your home loan application.
If you have a “bad” credit score, it’s not the end of the world. There are steps you can take to improve your credit rating, including:
- Building up a savings record with your bank.
- Ensuring you make regular repayments on time for any existing loans or credit cards you may have.
- Lowering the credit limits on your existing credit cards.
- Limiting the number of debts you have and the amount of times you apply for credit.
Things to know about your credit rating BEFORE applying for a home loan:
- Formal requests to check your credit report by a lender do have the potential to lower your credit score by 5-10 points each time, as they may indicate that you are in financial trouble and are applying for a lot of debt or that you have been refused credit by other lenders. This means that you should limit the amount of loan applications you are making. Using a mortgage broker to help you navigate the application process will negate the need for you to go around making a loan application with every lender you can as it means each enquiry won’t be flagged on your credit report.
- Your credit rating CAN be the only reason your loan application is declined so it is important to make sure you are keeping up with your obligations. Check here for more information about what your options are.
- Your credit rating can impact the interest rate you are offered
2. How long you have been in your current job
If you’re thinking of applying for a home loan in the not too distant future, but you’re also thinking about changing careers, or perhaps you’ve been offered more money with a different employer. Maybe you’re employed on a contract basis and your current contract is coming to an end. These are not trivial details when it comes to having a home loan approved, in fact, the nature of your work and how long you have been in your current job can make or break the outcome of your home loan application.
The biggest oversight we see people make is thinking that it is all about their income, and the length of employment doesn’t matter. That is incorrect. It also doesn’t matter if you’re an existing customer of the bank you intend to apply with.
What matters is the length of time you’ve been in your current job – the longer, the better. Six to twelve months is ideal. If you’re self employed, you can read more about how to get a home loan here.
Things to know about your employment status BEFORE applying for a home loan:
Most lenders like to see that you’ve been in your current job for at least three months, and at a minimum, completed any probationary period. The bank may contact your boss to confirm your employment status.
Lenders can differ in their criteria for the length of employment for your current job, and some will review on a case by case basis, taking into account a large range of factors including industry experience, income and pay structure, as well as your usual expenses, other debts and liabilities
Not all lenders will have the same criteria regarding the length of current employment, so if you have just changed jobs, or are intending to before or during the application period, there may still be options available to you, but it is important to note that it will likely be flagged by many lenders and may limit your options.
We understand the paradox here may be that changing your job may increase your borrowing capacity through a higher income, so discuss your options with your experienced mortgage broker (click here to contact one of the best mortgage brokers in Perth) to weigh it all up.
Because borrowers sometimes miss this information, we have seen instances of clients changing their job mid-application or before settlement, which must be disclosed to the lender and can’t be guaranteed to not cause issues.
Click here to read more about how your employment status can impact your chances of having a home loan approved.
3. Will getting pregnant impact applying for a home loan?
While it’s not impossible to get approved for a home loan when you’re pregnant, it does make things slightly more complicated. The reason being that you are seen as higher risk in the eyes of a lender who is largely focused on your ability to repay the loan.
On top of potentially affecting your ability to service the loan, having a child (a dependent) will increase your living expenses. In the instance that you become pregnant before or during the application process, the lender will likely want to know the following to help assess your suitability for a loan:
- If your parental leave is paid or unpaid
- The date you plan to return to work
- Evidence (e.g. a letter from your employer) stating the terms of your parental leave, and that you will return to work by a certain date
If you are applying for a home loan with a partner, it could be the case that their income is still high enough for the change of circumstances to not have a major impact on your home loan application.
Please discuss any likely scenarios and options with us as your trusted Perth mortgage broker.
These are some of the things to keep in mind (and can often be missed) if you’re thinking about applying for a home loan or refinance your home loan. By keeping these factors in mind, you can make a more informed decision when applying for a home loan in Australia. If you have any specific questions about any of these topics, please contact us to discuss.
Disclaimer: The information provided on this blog is for general informational purposes only and does not constitute financial or professional advice. While we strive to provide accurate and up-to-date information, mortgage laws and regulations can change, and individual circumstances may vary. We recommend consulting with a qualified financial advisor or mortgage broker to assess your specific situation and needs. Base Home Loans is not responsible for any actions taken based on the content of this blog. Always conduct your own research and consider seeking professional advice before making financial decisions.
