Things are looking pretty sweet in the home loan market right now.
Interest rates on home loans are at their lowest in history, with rates starting as low as 2.69 per cent. APRA changes to lender affordability tests could see you borrow tens of thousands of dollars more, and the property market is starting to turn around.
According to Corelogic, national dwelling values are up 0.9% month-on-month from September to October, and Queensland is producing some very high-yielding properties.
Be that as it may, some borrowers are still being tripped up when it comes to having their home loan applications approved.
Frivolous spending, undisciplined saving, and apparently having a sense of humour can all impact your chances of buying the home of your dreams. In fact, if you want your home loan approved when rates are at their lowest, here are the five things you really should NOT be doing.
1. Do not not order delivery food every night
Before the Royal Commission, a lender would review your income, major expenses, and other debts, such as credit cards or car loans. However, as regulation tightens, lenders aren’t just passing a simple glance at your financials, but are instead studying your bank statements to ensure you can meet your monthly home loan repayments.
Getting food delivered multiple times a week can impact your mortgage application, as lenders may see your spending habits as impractical, and basically a mismanagement of your finances.
So if you're in the market for a home loan and are addicted to ordering in, it might be time for some cooking lessons.
2. Do not transfer money with stupid references
Unfortunately, the banks don't really have a great sense of humour when it comes to writing provocative or risqué references on your bank statements.
Regardless of whether it's just for a laugh or not, financial institutions are cracking down on these types of transfers.
Whether it's $50 or $5000, these cheeky little transfer descriptions can hold up the processing of your applications. Whilst it doesn't necessarily mean your application will be rejected, lenders will take longer to review your request, questioning exactly why you transferred $100 for jobs of a certain nature, or even $500 for "drugs and rock and roll".
The next time you think you're being funny when transferring money to your mates with ridiculous references, it might be better to just play it safe and just say "thanks" or say what the payment was for.
3. Do not spend frivolously on a night out - take cash instead
The sound of your card tapping on a payment reader isn't just the sound of convenience, it's the familiar sound of an undisciplined spender on a night out. In a scenario that almost always ends in regret, there’s nothing quite like the fear you feel when you open your banking app to check last night's damage.
The ability to spend an obscene amount of money with a contactless card on a night out is the reality for many Australians, especially as inhibitions loosen and the drinks begin to flow.
What used to have a relatively modest impact on your own self perception and inner shame can now actually make an impact on your home loan application.
Spending foolishly is not a good motivator for your lender to loan you a tidy sum into the hundreds of thousands, so if you can't control your spending as your blood alcohol rises, try taking out cash instead of a card.
4. Do not save for your deposit by avoiding other debts
Lender's Mortgage Insurance can add up to tens of thousands of dollars for borrowers, if they don’t have at least 20% deposit saved for their dream home.
However, be careful that you don't focus all your efforts on saving a $100,000 deposit if you're ignoring other debts. Your debts are marked on your credit rating, and any large debts, missed payments or direct debits that default could end up hurting your chance of approval.
In fact, after Comprehensive Credit Reporting was introduced in July last year, your credit rating is not simply a compilation of all of your negative credit actions, such as missed payments or rejected credit applications. It now takes into account positive actions, like making credit card repayments in full each month and paying your rent on time.
It means if you have a $10,000 credit card debt, you should make sure that you don't get tunnel vision for your brand new home and forget about making your monthly repayments.
5. Do not apply for multiple loans at once
Did you know that applying for numerous loans at once can negatively impact your credit score, and directly impact your chance of home loan approval?
Applying for credit from a variety of different sources can make you look like an unreliable borrower just looking for some quick cash.
Your credit score is one of the main criteria lenders look at when processing and approving a loan. So even if an online application "only takes two minutes", think carefully about whether you'll be approved and if that's really the loan you want before you click send.