How to apply for a mortgage under tougher lending conditions

Last updated: 19 March 2021

In the market for a home loan? You may have heard that it is getting increasingly difficult to apply and be approved for a mortgage. Lenders have been tightening their policies when it comes to approving home loan applications and with the findings from the Financial Services Royal Commission, there has been a slow down in the property market.

So, what can you do to get yourself in a good position before you apply? Check out our tips below:

1. Review your spending & stick to your budget

Lenders are likely to go through your expenses with a fine-tooth comb and your discretionary spending on things like Uber Eats, Netflix, and buy now, pay later services (such as Afterpay) could affect your chances of approval.

Make sure you have a budget in place and try to eliminate unnecessary spending where possible. It’s always a good idea to save regularly each month, not only to have a bit of a buffer in case of emergencies but also to show the lender that you are spending within your means.

2. Build up your deposit

Having a deposit of at least 20% is important as you can avoid having to pay for lenders mortgage insurance. Aim for the largest deposit possible. Remember, a mortgage application with a large deposit and a small loan amount is less risky in the eyes of a lender.

3. Review your current debts outstanding

If you currently have multiple debts outstanding, try to pay them down as soon as you can. It may be worth looking at consolidating your debts to see if you can lower your interest rates and overall fees. Also, consider lowering the limits on your credit cards. The higher your total overall credit limits, the less a lender may be willing to lend to you.

4. Don’t make multiple credit applications

Each time you apply for credit, a credit enquiry can be recorded on your credit file. Making too many applications in a short period of time can lower your credit score and can signal to lenders that you’re in financial trouble because you aren’t able to get approval for credit. As we always say, only apply for credit if and when you really need it.

5. Make all your repayments on time

With Comprehensive Credit Reporting, lenders are now able to report your repayment history (on accounts like credit cards, personal loans, and home loans) to the credit reporting bodies. So, it’s now more important than ever to make all your repayments on time as late payments can impact your credit score.

Remember to check your credit score and credit file information to find out where you stand before you apply!

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