Us humans are habitual creatures, good, bad, and in-between. We consciously and subconsciously create everyday habits that can have an effect on your home loan application, and it’s not only our debt habits that credit assessors pick up on. Whether these habits work in our favour, or against us, is actually an important consideration when getting ready to apply for a loan.
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The single most important habit to get into is committing to saving regularly. Set yourself up with a separate savings account and commit to a regular transfer into this account. You can make this easy for yourself by establishing a weekly, fortnightly or monthly direct debit through your chosen banking app. Start by working out your disposable income and consider setting aside the most financially viable amount of that for your savings transfer.
Other savings methods include the pay split breakdowns. This is where you split your pay across different needs. For example, you could adopt the 60-20-20 method. This is where you split 60% of your pay to your general living expenses, 20% split into a short-term savings to account for any indulgences or holidays, with the remaining 20% split into long-term savings for major purchases.
Some of us are lucky enough to indulge in takeaway lunches and coffees every day, be groomed by a fancy barber/hairdresser, or spontaneously buy new outfits on the regular. But tread carefully if you’re looking at a home loan any time soon, because it’s the same indulgences that may impact your loan application negatively.
Some lenders require your transaction account statements to assist with the assessment of your credit worthiness. Any transaction that appears on your bank statement could well become a factor in determining your everyday living expenses. As a Mortgage Broker, we are required to verify your living expenses, but we can also help establish what your current spending habits are, and if it they need improvement.
Proving your capacity to repay a proposed debt is becoming more significant than ever before, so set the expectation that questions around your spending will be asked.
To help you implement the right habits, you could consider a small guilt free daily spending limit, or timed consideration period before committing to impulse purchases.
In the new world of Comprehensive Credit Reporting and Open Banking, your debt habits are highlighted brighter than ever before. Many lenders share your repayment history these days (appearing on your credit report), and if they don’t most lenders will at least ask for a recent statement for any current liabilities.
Try and keep within your credit limits. Creeping within and over a credit limit is bad news for your home loan application, even if you are still meeting your minimum repayments on time.
It’s obvious but missing debt repayments is probably the single worst habit you can display to a lender. Not only do they show on your credit report, they can also cost you more money in the short and long term. A lender looks at the factual evidence, and rarely do they listen to a story with open ears. Consider setting up your direct debits with 3-4 business days to spare before the due date, ensuring no transfer lags occur.
Shop around for better credit options but do so diligently and with professional help. Be careful because each time you make an enquiry with a new lender, that enquiry might also appear on your credit report. The more enquiries on your credit report, the more trouble you could find yourself in when trying to obtain a home loan at a market leading rate. Mortgage Brokers can assist with comparing your options, without the footprint left behind.
Some absolute debt red flags you should consider; payday loans, loan sharks and the use of credit to facilitate gambling.
So, whilst your negative spending and debt habits can be scrutinised quite heavily in a home loan application, the positive habits you display can also increase your credit appeal.
It’s always best to speak with a Mortgage Broker prior to applying for a home loan application, especially if you want it handled in a responsible manner. Call us on 8300 8300 or get in touch with us to discuss getting you home loan ready.
*The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone's personal situation is different, this article should not be taken as advice. We recommend you seek individual advice with a mortgage broker.