Applying for a home loan is a significant step towards homeownership, but the process can be overwhelming, especially for first-time applicants. At Fox Mortgages, we strive to simplify this journey for you by highlighting some of the key mistakes to avoid during the loan application process.
1. Making multiple applications
Exploring different loan options is crucial, but submitting numerous applications to various lenders can raise red flags. This practice, known as “loan-fishing,” can negatively impact your credit score and financial stability. At Fox Mortgage Services, we recommend prudent decision-making when considering loan options.
2. Forgetting to Review Your Credit Report
Your credit report is a critical factor in the loan approval process. Overlooking it can lead to missed discrepancies that may affect your chances of securing a loan. We advise our clients to thoroughly review their credit history to address any inaccuracies and ensure a smooth application process. You can order a free credit check through Experian.
3. Closing Credit Card Accounts
Whilst too much credit can impact your borrowing capacity simply closing credit card accounts may not always have a positive impact on your credit score. It is essential to understand the implications of such actions on your financial profile before applying for a home loan.
4. Taking on Additional Debts
Taking on more debt before applying for a mortgage or even during the process of applying can adversely affect your debt-to-income ratio and your credit score. We have had quite a few instances where applicants have bought a car on finance or through a novated lease prior to purchasing a home as they do not think they can apply afterwards, this usually results in a servicing shortfall and therefore a declined application.
5. I need to get a Credit Card so I have Credit History
A common misconception is that if you have no credit you will not be able to get a mortgage. Lenders of course utilise credit reports to assess your credit worthiness, however you do not need to apply for a credit card to build your history. Applying for a credit card prior to a home loan may have an adverse rather than a positive impact.
6. Not Understanding Lending Criteria
If you are set on doing it alone it’s important that you familiarise yourself with the lenders’ criteria for a successful application. With lenders having different niches and policies it may be better to get some guidance, a mortgage broker will be able to assist in assessing your situation and matching you with suitable lenders.
7. Failing to Explore Options
Limiting yourself to a single lender or loan offer can restrict your chances of finding the most suitable option. If you are a first home buyer, your current bank may not be able to get you access to all the schemes and offers that are available. Your bank can only advise you on their products, our experts at Fox Mortgage Services have access to dozens of lenders and hundreds of products to assist you in making an informed decision.
8. Adequate and the Correct Type of Deposit
Having a sufficient deposit is crucial for a loan approval. Most lenders want to see that you have an adequate deposit in place and it’s come from genuine savings, however gifts and rental history may get you through with others. We can provide insights on deposit requirements and assist you in planning effectively for your home purchase.
9. Overlooking Purchase Costs
In addition to the deposit, there are other costs involved in buying a home. There’s stamp duty, settlement agent’s costs, inspections, transfer fees and some lenders may also charge an application or processing fee. Our team can outline these expenses and help you budget accordingly to avoid any financial surprises.
10. Documentation Errors
Submitting incomplete or incorrect documentation can lead to delays in the application process. Each lender has different requirements when it comes to what information to provide. At Fox Mortgage Services, we stress the importance of meticulous paperwork submission for a seamless experience. Identification documents are also important, ensuring that you have valid driver’s licence, passport, medicare and visa documents (if you are not an Australian citizen) is important, the original documents have to be verified.
11. Understating Expenses
Transparently disclosing all expenses is vital for an accurate assessment. There’s a requirement to review your living expenses, these can be accessed via bank statement retrieval systems which can split out between discretionary and non-discretionary expense and verified against Household Expenses Matrix (HEM). Again, lenders have different policies and requirements. If you are unsure how to calculate your expenses then one of our experts can help you detail your financial commitments accurately to strengthen your application.
12. Significant Employment Changes
Major life events like career changes can impact your loan application. Whilst changing jobs can seem like it may put back the chance of applying for a home loan, the reality is in most cases you may still qualify. We can offer assistance in navigating such transitions for a successful application process.
Applying for a home loan requires careful consideration of your financial situation and responsibilities. At Fox Mortgage Services, our goal is to help you avoid common pitfalls and navigate the application process with confidence. Contact us today for personalized guidance and support in your homeownership journey.