Applying for a home loan? Start preparing well ahead of time — financial details can have huge loan implications. Photo: John Lomnicki. Photo: Michelle Kroll.
I once had a client’s property valuation come back significantly lower than expected because the house didn’t have a kitchen.
Now, the client wasn’t living without a kitchen. He’d taken a couple of weeks off work to install a new one, and the valuer happened to turn up halfway through the job.
I rang the valuer to explain.
His response? He couldn’t tell whether the client was putting the kitchen in or pulling the old one out. All he knew was that when he inspected the property, there wasn’t a functioning kitchen.
Fair enough, really.
It’s a good example of something I see regularly in lending. People can have perfectly good financial circumstances, but if the timing, paperwork or presentation isn’t right, a bank might see a vastly different picture.
And when you’re asking someone to lend you hundreds of thousands of dollars, those details matter.
One of the biggest things I encourage people to do before applying for a home loan is to get their existing debts under control.
I’m not suggesting everyone needs to be debt-free. But if you have a few credit cards, a car loan and a couple of buy now, pay later accounts floating around, it’s worth reviewing them.
Every repayment takes money out of your monthly budget, and lenders want to see that you can comfortably afford the mortgage you’re applying for.
They’re also interested in how you’ve managed those debts. Closing a credit card might help your borrowing capacity, but it doesn’t magically erase a history of missed repayments.
And if there’s something on your credit file you’re worried about, tell us. I’d much rather know about it up front than have a lender discover it halfway through an application.
Trilogy Funding managing director David Thomas says the more you understand about how a lender will assess your circumstances, the better prepared you can be. Photo: Thomas Lucraft.
Employment is another interesting one.
We recently had a client tell us he’d been in the same job for three years. Great, we thought. Three years of consistent employment.
Then we received his payslip.
He’d actually been doing the same type of work for three years, but across three different employers. He’d only been with his current employer for a few weeks.
Now, that doesn’t mean he can’t get a home loan. But it changes which lenders might consider him, particularly if he’s still on probation.
It’s a small distinction to the client, but potentially a big one to the bank.
The same goes for people earning commissions, overtime or seasonal income.
Think about a car salesperson earning big commissions around the end of the financial year, or a casual hospitality worker picking up extra shifts over summer.
Their income might look completely different depending on when they apply. Some lenders will want to see a longer history, while others assess variable income differently.
Understanding that before applying can save a lot of mucking around.
And please, get your paperwork sorted.
Make sure your identification matches, your payslips are current and your financial information is accurate. Something as simple as a different name on your passport and driver’s licence can create delays that nobody needs.
I also see people shopping around for a home loan by submitting applications with multiple banks.
I understand the thinking. Surely more applications means a better chance of approval?
Not necessarily.
Multiple credit inquiries can raise questions, particularly when they’re close together. A lender might wonder why the previous bank didn’t proceed.
You’re generally better off working out which lender suits your circumstances before submitting an application.
Look, nobody’s finances are perfect. People change jobs, have unexpected expenses, make mistakes and occasionally decide to renovate their kitchen at precisely the wrong time.
None of that automatically rules you out of home loan approval.
But the more you understand about how a lender will assess your circumstances, the better prepared you can be.
Because sometimes the difference between a straightforward approval and weeks of frustration isn’t your income or your deposit.
It’s getting the little things right before the bank starts looking.
David Thomas is the managing director of Canberra mortgage broker Trilogy Funding.
