Home loan approval tips for first home buyers
At Industry Insider it’s our great pleasure to help many first homebuyers make their way onto the Melbourne property ladder.
It’s always a buzz seeing the transformation from hopeful buyer to successful new homeowner smiling in front of the SOLD sign.
Behind the scenes, there’s often a lot of education and support involved in helping our clients achieve this life milestone.
To streamline this process, we regularly refer to our trusted colleagues across the industry, including mortgage broker Dylan Day and the friendly team at Loan Market in North Melbourne.
That’s who we spoke with recently to compile these useful loan application tips and insights.
Planning ahead: Are you ready for a home loan?
Spending your nights trawling online real estate listings and envisioning the perfect kitchen splashback might not translate into being truly ‘home loan ready’.
Chances are, you’ve been planning for a long time and ardently saving your hard earned cash to be able to put down a home deposit. So how do you know if you’re ready to go?
Dylan Day suggests a thorough review of your recent financial behaviour so you can win the banks over.
“It’s more important than ever to be aware of your own conduct – how you spend your money, your living expenses, any overdrawn accounts, credit cards and things like HECS debts.
If you’re going to borrow half a million but you’re late with paying a phone bill, the banks might not feel comfortable approving your home loan.”
This might be a timely reminder to tighten the reigns across all of your financial commitments and spending habits before you set down the home loan approval path.
This way you’ll be in the best possible position to confidently apply and manage your mortgage.
Starting the loan approval process
Dylan works with many young first home buyers and sees his role as encompassing financial education as much as securing the right loan for his clients.
He understands that people are sometimes daunted by the process and the sheer weight of their obligations when it comes to a home loan.
He explains, “A point of difference I look to provide is tailored financial education to make sure clients understand the significance of their mortgage as a liability – not something to be feared but to be understood and planned for.
This education always includes a free initial face-to-face appointment to discuss the client’s homeownership goals and financial situation.
In this initial appointment, the broker explains the mortgage and can go through the breakdown (schedule) of costs.
Dylan stresses the importance of having an independent home loan expert talk you through this often complicated schedule of costs and terms – particularly as an inexperienced buyer.
Parental guarantees, LMI & mortgage myths
There are some cases when first home buyers are able to get some financial assistance in the form of a parental guarantee.
Dylan manages this process regularly and says it doesn’t need to be a fearful arrangement (for parents or the first home buyers).
As long as both parties are aware of their risks and obligations, a parental guarantee can be a convenient and cost-effective step towards home loan approval.
Dylan hopes to dispel the myth that parental guarantees are a recipe for a full-on family feud: “The parental guarantee is sometimes a good way for buyers to avoid LMI (Lender’s Mortgage Insurance).
In times gone by, parents would gift their money to their kids for a property.
A parental guarantee is an extension of that in some ways.
This needs to be explained correctly by an experienced mortgage broker who can talk you through the process and responsibilities.”
Working out your borrowing capacity
Your mortgage broker (or the Loan Manager you deal with directly at a bank) will carefully examine your borrowing capacity by weighing up your income, expenses and any liabilities.
That means that by the time your application is lodged, all that’s left to do is wait for the final approval.
Dylan reminds us that “a ‘no’ from one bank does not necessarily mean a ‘no’ from all banks” – helpful encouragement for a nervous stage in the buying process.
Deciding on the right loan
Ultimately you have to be comfortable with the agreement you’re entering into.
A broker can present your options and help you clearly navigate your choices obligations – but the final decision rests with you.
If you’ve done the hard work through planning and carefully considering your financial situation then you’re ready to take that all important step onto the property ladder – congratulations!