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While lending restrictions have recently softened, since the Royal Commission, banks have been increasingly focussed on borrower’s ability to repay their home loans. And they’re asking some unique questions to find out if they qualify. Here’s what you may be asked when applying for a home loan and how you can prepare.
What do you spend your money on?
A no brainer, but it may surprise you how much detail the bank will require about your everyday living expenses. Typically, you will need to provide a detailed view of where your money goes each month, which may be reviewed line by line.
According to Domain, lenders are looking for shopping, streaming and subscriptions habits, considering the expenses of Netflix or Spotify subscriptions, gym memberships, meal plans or any other regular subscriptions.
“While being asked about your Netflix or Hello Fresh seems whacky, subscriptions and regular direct debits can add up over time. Lenders are now taking these into account in terms of creating a picture of the overall health of your budget and financial position,” says Nick Boyd, Belle Property Head of Sales and Business Development.
Are you employed and do you earn enough?
Your current salary and employment details will be reviewed, and lenders will carefully consider whether your salary can support your lifestyle, and your mortgage repayments.
According to Yourmortgage.com.au, ideally, you want to be employed in the position you currently hold for at least six months. If you’re a contractor, you’ll need to have spent at least 12 months in your role to prove your role is ongoing.
“Lenders will also ask if your salary can support your dependents, which can include pets. According to Domain, cats and dogs can cost around $25,000 over their lifetime – so funnily enough questions about your animals make sense in terms of your borrowing capacity,” says Nick.
Do you have savings; but more importantly, can you save?
Of course, saving for a house deposit is a major part of being approved for a home loan, but lenders are now also asking about your capacity to save, and save consistently.
According to Yourmortgage, a lot of lenders see your saving ability as an example of how well you can and will handle your finances. Borrowers who regularly save are more likely to get their applications approved.
“Lenders want to know, yes that you have your deposit, but they might also investigate your attitude to saving and whether you have been able to save in the past,” says Nick.
So, how can you best prepare for these conversations with your lender before you have them?
“Put yourself in the best position to qualify for a home loan by having your paperwork in order before you speak with a lender,” says Nick.
According to NAB, you should come prepared with as much documentation as possible, including personal IDs (passport or driver’s license), banks statements, credit card statements, payslips, tax returns and any other documentation relating to owned assets or investments.
“While every lender will ask you about what you earn and owe, it’s best practice to be prepared for the curly questions that might come your way. Get your documentation in order and be as transparent as possible, and you’ll be in the best position to be approved for a loan, and the home, you’re after.”