Between gifts, holidays, savings, a new job and a new home, that list of resolutions can be endless. If buying a home is on the top of your priorities, there are 6 things to think about this Christmas that could help your chances of getting a mortgage.
1. Manage your credit well after the holidays
New year is the time to pay down any existing debts and avoid taking on any new ones. As tempting as the special offers in the New Year sales might be – think again. Getting your own home might mean other things need to wait.
Lenders will look very closely at your credit file. You want to make sure you are currently paying all your bills on time. They want to feel confident you can mange home loan repayments. So try to manage your money well and avoid being late with any repayments.
2. Check your existing credit score
A common perception by people is that checking your credit report can be detrimental for your overall score1. This is not true. There are two types of checks that can be made on your credit score. Checking your own credit report is a ‘soft’ enquiry and won’t affect your score. However, giving a lender permission to check your report is classed as a ‘hard’ enquiry and this does affect your score. The Australian Securities and Investments Commission [ASIC] suggest an annual check, something you are entitled to do for free2, to:
- Make sure that your name or date of birth are correct,
- See if your address needs updating,
- Check if any debt has been listed twice or whether the amounts are correct,
- Whether you have been recorded as missing any repayments,
- Whether someone might have stolen your identity to get credit.
If anything is incorrect now is the time to get things fixed. To learn how credit score is calculated and what can cause a default to occur click here.
3. Keep all your documents
Lenders will want certain information from you when you apply for your loan. The more information you can provide, the better your chances of getting approval. So it’s a good idea to keep any statements for your loans and any credit cards, your savings records, as well as your pay slips and tax returns.
4. Work out the right type of mortgage for you
Fixed or variable? Principle and interest or interest only? When you are choosing a home loan it's important to work out the features you need from your loan and what that will cost you in fees. Again, ASIC offers a useful overview. They cover the different types of loans available and what you need to consider before you sign up. Check them out here to find out about:
- How to compare home loans
- Principal and interest loans
- Interest-only loans
- Variable, fixed* and split rate home loans
- Redraw, offset and line of credit
- Construction loans for building or renovating
5. If you can, avoid starting a new business during the buying process
Leaving the corporate job to start your own business or looking for a new workplace can be an exciting career change, but it may affect your ability to borrow when you’re trying to secure a home loan. Some lenders may assess a borrower’s income and savings, amongst other factors during the application process, and starting a new business might mean inconsistent cash flow at the beginning or a lack of standard documentation.
Already self employed? At Pepper Money, we understand that it is not always possible to provide all the up-to-date paperwork or proof of standard income, that why we designed the alternative documentation loan. For tips on how to get a home loan if you’re a self-employed borrower read here.
6. A word about ‘genuine’ savings
Lenders will want to see you have a good ability to save. That’s because they know that people who have saved more than 5% of the purchase price in a savings account, shares or term deposit, are much more likely to pay back a home loan than people who don’t show they’ve been able to make any savings. Most look for what they call genuine savings. So it’s a good idea to put all of your spare funds into a separate savings account and keep making regular contributions. The good news is that at Pepper Money we look at the big picture, we consider your individual circumstances as a whole rather than reject your application based on a predetermined list of criteria.
One last thing: Ask us for advice
If you have any questions at all about your eligibility for getting a home loan then talk to us. We are here especially to help people who don’t meet a traditional banks’ criteria. If you’d like to know more have a chat to one of our Lending Specialists on 13 73 77 or contact your Pepper Money broker. They’re there to help.
1 Three common credit myths by Dun & Bradsheet Australia
2 MoneySmart credit report fact sheet 2014
*Currently Pepper Money doesn’t offer fixed rates for new loans