How to get a home loan while interest rates are low.
Despite the ongoing turbulence of 2020, record-low interest rates and government incentives are enticing increasing numbers of first home buyers and investors alike to the Spring property market.
With the Australian Bureau of Statistics reporting the biggest increase in new home loans since the 2002 Global Financial Crisis, savvy property investors are taking advantage of a market that is presenting mortgage repayments almost on par to the cost of comparable rentals.
While money may be cheap, home loans are a large financial commitments and lenders will want to know the ins and outs of your finance position and are willing to ask some unique questions to find out if you qualify. Here’s what you may be asked when applying for a home loan and how you can prepare.
Home loan question #1: What do you spend your money on?
A no brainer, but it may surprise you how much detail a home loan lender 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.
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.
On this, Nick Boyd, Belle Property’s Head of Growth says “while being asked about your Netflix or Hello Fresh may seem 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."
Home loan question #2: 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, most importantly, 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 before the application process begins. If you’re a contractor, you’ll need to have spent at least 12 months in your role to prove your position is ongoing.
“Lenders will also ask if your salary can support your dependents, which can include pets. Your small best friend can cost anywhere up to $25,000 over their lifetime – so funnily enough, questions about your animals make sense in terms of your borrowing capacity,” says Nick.
Home loan question #3: 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.
Your home loan lender will look favourably on those who have superior saving abilities as it demonstrates how well you can and will handle your finances. This is why 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.
Home loan question #4: Do you have all your relevant documentation prepared?
“Put yourself in the best position to qualify for a home loan by having your paperwork organised before you speak with a lender,” says Nick.
Come prepared with as much documentation as possible, including personal IDs (passport or driver’s license), bank 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.”
Want more information on home loans? Make sure to read our blog five simple steps to landing your loan before you home.