The coronavirus pandemic has shaken up many factors affecting the Australian property market. The cash rate is currently its lowest ever point at 0.25% as of the 14th of September 2020. Many government cash benefit programs such as the First Home Buyers Assistance scheme have been implemented. Factors such as these have generally reduced interest rates across the market, and there are many opportunities for first home buyers to seek out more mortgages that work for their financial situation. These low rates, however, mean that banks are looking more closely at applications to determine the financial capacity of its first home buyers to take out substantial home loans. Similar circumstances occurred in 2018, where 40% of First Home Buyer applications were denied by financial institutions due to a lack of financial capability. There are many different methods for improving your mortgage application. Us at Vision, have compiled them into 4 simple tips and tricks.
Stay within your Limits for your Mortgage Application
Keep within a realistic price range for your mortgage. Whilst the market has increased competition amongst lenders for applicants, they are still legally obliged to administer home loans in a responsible manner and will not give out mortgages they know you cannot afford. Sit down with a mortgage broker or an advisor to go over your income and expenses. In doing this, you will be able to establish a realistic borrowing capacity that can compensate for various other life expenses.
Reduce Unnecessary Expenses prior to your Mortgage Application
Banks will utilise your statements to determine how often you are spending. Substantial amounts of discretionary expenses such as ‘Afterpay’ and other short-term loans, frequent restaurant visits and large amounts of entertainment spending that can’t be justified by positive cash flows can portray poor financial management to your lenders. In the six months prior to applying for a mortgage, ensure you have established a budget that can indicate to lenders that you are capable of reducing non-essential expenses and saving.
Demonstrate Financial Discipline
Indicate to lenders that you have the ability to save and pay back lenders and suppliers on time. For example, if you are saving $1000 per month and paying back another $1000 in rent in a consistent and timely manner, it can prove that you have the capacity for a mortgage repayment of up to $20000per month.
Maintain Current Employment before your mortgage application
Don’t switch jobs anytime soon. Changing between jobs prior to a mortgage application is can indicate uncertainty and instability to your lender. In most cases, lenders prefer that you have been with the same employer for a least six months prior to your application unless you have started a new job in the same industry. Lenders generally acknowledge this provided you have worked at least two years in that particular industry.
In conclusion, lenders want to ensure that they are administering home loans to First Home Buyers who show that they are financially capable. For more information on improving your mortgage application and how Vision can help you land your first home, please check out our website here or give us a call on 02 4014 1999.
You can find more information for First Home Buyers on our blog, such as how to claim over $55,000+ in cash benefits with your mortgage!