For most of us, deciding to buy a property is among the biggest financial decisions we are faced with. Especially for first-time homebuyers, the purchasing process can sometimes seem daunting, and there are often many questions:
- How do I increase my chances of loan approval?
- Am I buying in the right location?
- Which lender should I apply with?
- Am I looking at the right properties for me?
- What loan products are most suitable in my situation?
The potential questions are endless, so we have some key takeaways from helping thousands of homebuyers for you to consider below. By providing a better understanding of the loan application and purchasing process, we hope to help you avoid some of the hurdles that can emerge for first home buyers. Over the years we have seen a number of clients miss out because of a change to their circumstances during the loan application process, and we have put the below guide together to help you avoid making these same mistakes.
You can’t be expected to understand everything that might impact an application right away, so our main message is to surround yourself with the right team to help you navigate the process.
Things NOT To Do When Applying For A New Loan
It’s important to understand that banks and lenders have the right to withdraw or alter a loan approval at any stage, right up until the day of Settlement. If there are any changes to the information that has formed the basis of an approval decision, this can trigger a review of your loan approval, or even the withdrawal of the loan offer all together. For the vast majority of clients, this part of the process from approval to loan settlement goes quickly and smoothly, however there have been examples where a Pre-Approval or Formal Approval has been withdrawn after being issued. If you can avoid the following in the months leading up to a loan application and just as importantly, after your loan application has been lodged, it will go a long way to avoiding any trouble:
Changes to Employment
Changes to employment that can affect your loan application include changing from Full-Time to Part-Time or Casual, starting your own business (Self-Employed) or changing employers. Changes between industries are particularly significant. Even taking on a new job with the exact same role with a new company for higher pay can potentially create issues with your existing loan application, so it’s always best to check with your broker before considering any employment changes.
Additional Living Expenses / Debts / Increase Credit Card Limit / AfterPay / ZipPay / Pay Day Loans
Any extra debt approved will decrease the amount you can borrow on your home loan, and if you make any additional enquiries for financial products while you prepare for a home loan application this can impact your likelihood of approval. Any changes to your normal levels of expenditure and other existing commitments may see your approval withdrawn. If you are expecting any larger than usual expenses, or major purchases, it’s always best to check with your broker whether this will impact your application or not before acting.
Add Extras to Build Contracts Post Approval
Loan Approvals are based on the Contracts that are submitted with the loan application, and any changes or additional items added to your building contract after you have applied for your loan must either be paid from savings or be subject to your loan application being reassessed and reapproved at the higher loan amount to cater for any additions. This is not automatic and will depend on your deposit, income, a new valuation etc, so you should check before making any alterations or changes. If you are proposing to pay for any changes from your savings, you need to make sure you are not using any funds that have been set aside for your deposit from your original application. Making changes that decrease your overall house cost can also impact your application, if any contract inclusions or finishings are removed.
A growing family means increased levels of expenditure and therefore a reduced borrowing capacity. Depending on your circumstances, this may be the difference in being able to settle on your new purchase or not. Please discuss and understand the changes to borrowing capacity and the ability to meet ongoing repayments. There are also important considerations relating to income and employment, with maternity leave, reduced working hours or an uncertain return to work date all impacting your loan application and approval.
Your credit history is a live, regularly updating snapshot into your finances that banks & lenders can access at any time. Some lenders will run a Credit Check in the days before settlement and if you have missed paying any bills or made any late loan or credit card repayments between lodging your application and property settlement, this may cause a lender to withdraw an approval. Paying your bills and making repayments on time is always important – this is especially the case when purchasing a property.
These are just some of the more common hurdles that emerge for home buyers going through the process for the first time. Everyone’s personal circumstances are different, so it is really important to be ‘on the front foot’ and discussing any potential changes you may be expecting if applying for finance before they occur. Usually, if addressing any potential changes ahead of time, there are more alternatives and options in place to move forward. The simple reality is: if you are planning on applying for a home loan to purchase a new home, stability is highly regarded, and it is not an ideal time for any voluntary major changes to your financial position.
Do you have any questions about how this might apply to you? Get in touch with us using the Contact Form below.
Contributor: Alex Jacques – Director, Jacques Financial Group