Now that you have lodged your home loan application, it’s time to hit the sales and pick up the best furniture on display – or is it? Unless you’ve been living under a rock, you’ll already know that lenders closely scrutinise your living expenses to meet the responsible lending guidelines set by the government before approving your home loan application. 


Even if your application is pre-approved, most lenders will run a credit check before settlement. Any unexplained expenses could therefore be potential red flags, including items you’ve purchased for your new home. Here are some things you can do to prevent your home loan application from getting rejected for avoidable reasons.


  1. Stick to your employer


Before approving your mortgage application, lenders want to know whether you can repay the loan or not. Therefore, they tend to prefer borrowers with a regular and consistent income, as their financial condition is likely to remain stable in the foreseeable future.


Switching jobs after lodging your home loan application, or a few months before applying for a home loan, can make it harder to get approved for a mortgage as lenders are looking for signs of stability. If you’re planning to change jobs, consider holding off until your loan is approved. If you’re planning to remain in the same industry but moving to a better role or salary, you may consider discussing this with your lender and explain to them there will be no adverse change in your financial circumstances. However, be aware that some lenders will require you to be in your current position for a few months before you become eligible for a mortgage with them. It’s worth checking these requirements or discussing your situation with a broker, especially after you’ve applied for a home loan, to prevent your application from getting rejected.



  1. Hold off on big purchases


Even if you’re confident you can afford a new car or furniture, opening a new line of credit (such as taking out a car loan) or making a big purchase on your credit card could significantly alter your debt-to-income (DTI) ratio, which may lead to your application getting rejected or a higher rate of interest may be offered to you.


Your DTI ratio is a comparison of the amount of money you earn to how much of that money you owe in existing debts. A DTI ratio of more than six times your income is usually considered risky by lenders.


  1. Maintain your credit score


You may be frenzied preparing for your new home, but it’s important to keep a tab on your repayments and other recurring bills to avoid any late payments that will lower your credit score. You may even be thinking of reducing your other debts at this time to streamline your finances but don’t just close any existing credit cards yet, as it may alter your credit rating for the worse. 


It also helps to check your credit score online before applying for a home loan. Lenders consider borrowers with a low credit score to be high risk. They may not even approve mortgage applications for individuals whose credit score is below a certain threshold. If your credit score is low, you can review your credit report before applying for a home loan to dispute any incorrect listings and work towards improving your credit score before it is viewed by a lender.


  1. Get the paperwork right


Lenders ask for specific documentation to establish your credit history and repayment capacity. Provide the necessary loan documents for your home loan application.


  1. Keep proof of sourced payments


Your family may be generous enough to help you with your deposit, but do not let the gesture turn sour. Ensure that you submit proper documentation to verify the source of any amount transferred to you that is more than 50% of your monthly income. Un-sourced payments may be viewed as credit by lenders.


  1. Account for accessory costs


Whilst you may think that your loan will cover your purchase, there is nothing worse than falling short by a thousand dollars on ‘Judgement Day’. Remember to allow for additional costs such as stamp duty, application fees, mortgage insurance etc. There are many calculators that can help with this.


  1. Avoid multiple home loan applications


Every home loan application that you make is recorded on your credit file, and making multiple applications in a short span can negatively impact your credit score. Instead of applying with multiple lenders, you can compare home loans online to find a deal that meets your requirements both in terms of interest rates and features. 


Also check the eligibility criteria of individual lenders before applying for a home loan. A broker can help you narrow down your options and apply with a lender most likely to approve your application. If you’ve already filed an application with one lender, wait for them to make a decision before putting in a new application with another lender. It also helps to calculate how much you can afford to borrow by working out your monthly repayments and applying for a right-sized home loan. 


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