Professionals Real Estate 
When it comes to obtaining a mortgage, being prepared and organized can significantly increase your chances of approval. Lenders typically evaluate several factors, including your income, employment history, savings, deposit, spending habits, credit score, and assets and liabilities. By understanding what lenders look for and ensuring you have the necessary documents in order, you can streamline the application process and enhance your prospects of securing a home loan.
Gathering Key Documents
Before diving into the mortgage application process, it is crucial to gather the necessary documents that lenders typically request. These documents serve to verify your identity and provide insight into your financial situation. Among the key documents you may need are:
100 Points of Identification: Lenders often require identification documents, such as a driver’s license, Medicare card, or passport, to establish your identity and credibility. Ensure you have these documents ready and valid.
Proof of Income: To assess your borrowing power and repayment capacity, lenders typically ask for proof of income. This usually includes two to three months’ worth of payslips, showcasing your consistent earnings. A higher income may be viewed favorably by lenders, but it is not the sole determining factor.
Proof of Savings: Demonstrating a history of saving is advantageous when applying for a home loan. Lenders appreciate borrowers who show the ability to manage their finances and contribute to their savings. Providing two to three months’ worth of bank statements exhibiting regular savings can increase your chances of approval.
Assets and Liabilities: Lenders are interested in your overall financial position, including any assets and liabilities you possess. Assets may include properties, vehicles, or superannuation, while liabilities consist of debts like credit card balances, HECS or HELP loans, and existing loans. Be transparent about your financial obligations to provide lenders with a comprehensive picture.
Additional Document Requests: Depending on your circumstances, lenders may request additional documents like tax returns, credit card statements, or other specific records. It is essential to be prepared for such requests and provide the requested information promptly to avoid unnecessary delays in the application process.
Factors Considered by Lenders
Now that you understand the key documents required, it’s crucial to grasp the factors lenders consider when evaluating your mortgage application. While this list is not exhaustive, it provides insights into the primary considerations:
Income: Your income plays a crucial role in determining your borrowing power. Lenders evaluate your income to assess your ability to make regular mortgage repayments. While a higher income is generally viewed favorably, lenders also consider factors such as employment stability and future income prospects.
Employment History: In addition to income, lenders analyze your employment history. A consistent employment record signals stability and reliability, which can strengthen your application. If you have been in your current job for several years, lenders may view it positively, as it indicates a settled and stable financial situation.
Savings: Having a proven track record of saving demonstrates financial discipline and the ability to manage money effectively. Lenders appreciate borrowers who contribute regularly to their savings, as it indicates a higher likelihood of being able to afford mortgage repayments. Moreover, your savings will contribute to your deposit when purchasing a home.
Deposit: The deposit you contribute towards a property purchase is a crucial factor in the mortgage approval process. Lenders assess the loan-to-value ratio (LVR), which compares the loan size to the property’s value. A larger deposit results in a lower LVR, potentially leading to lower interest rates and the avoidance of lenders mortgage insurance (LMI). Saving for a substantial deposit indicates financial stability and reduces the lender’s perceived risk.
Spending Habits: Lenders often scrutinize your bank statements and credit card records to understand your spending habits. They examine your monthly living expenses, including bills, groceries, and discretionary spending. Responsible financial management, living within your means, and avoiding excessive debt can positively impact your loan approval chances.
Credit Score: Lenders assess your credit score to determine your creditworthiness as a borrower. A higher credit score indicates responsible financial behavior, such as timely bill payments and low levels of outstanding debt. Conversely, bankruptcies, defaults, and multiple unsuccessful loan applications can lower your credit score. Maintaining a healthy credit score is vital for securing a mortgage with favorable terms.
Investment Home Loans
If you are applying for an investment home loan, certain factors require additional consideration:
Rental Income: Lenders typically evaluate the rental income you expect to receive from the property. However, they often scale back this income to account for potential vacancies. For permanent rentals, lenders may consider 70% to 80% of the actual rent, while apartments may be scaled back to 60%. If you rely solely on rental income to repay the mortgage, lenders may be hesitant, preferring to see alternative income sources.
Running Costs: Some lenders take into account the running costs associated with an investment property. These costs can include management fees, strata fees, council rates, insurance, and maintenance expenses. If you are refinancing an existing investment property loan, lenders may request evidence of your current expenses. For new investment property loans, lenders may ask for estimates of running costs or calculate them themselves.
Debt-to-Income Ratio: The debt-to-income (DTI) ratio reflects the proportion of your income dedicated to debt repayments. Lenders use this ratio to assess your ability to manage repayments. While every lender has different policies, investment loans may receive closer scrutiny due to their perceived higher risk. Ensure your DTI ratio is within acceptable limits by managing your existing debts responsibly.
Summary
Successfully securing a mortgage requires careful preparation and understanding of what lenders look for in an applicant. By gathering key documents, demonstrating stable income, maintaining savings, managing spending habits, and cultivating a good credit score, you can increase your chances of approval. Additionally, being aware of the specific requirements for investment home loans, such as rental income, running costs, and DTI ratio, is crucial when pursuing an investment property. By being proactive and organized, you can navigate the mortgage application process with confidence and move closer to owning your dream home.
