Applying for a Mortgage
Applying For A Mortgage – What You Need To Know
Applying for a mortgage is both exciting and scary, especially the first time around. But there are a few things you should know, before going in, that can move the needle away from scary and towards exciting.
High Debt To Income Ratio
The first thing lenders consider when looking at a mortgage application is the Debt-to-Income Ratio.
This means comparing your income level against any outstanding loans or commitments, including the loan you are applying for. What they are determining is your ability to repay the loan, without putting you under undue financial stress.
Mini Case Study
A couple earn $200,000 combined. They have a $20,000 car loan, a $5,000 credit card limit (note this is limit, not balance), and are applying for a $700,000 home loan. The debt-to-income ratio is determined as $725,000 divided by $200,000 – or 3.62. Whilst each lender is different, generally a rating of 6 or higher is considered risky.
A good credit rating will stand you in good stead when applying for a mortgage.
So, how do you get a good credit rating? Simple. You pay your bills on time. Utility bills, phone plans, BNPL arrangements, and credit card and loan repayments all contribute to your credit rating. So make sure you keep on top of all those payments.
Most lending institutions are looking for stability. They want to know they can rely on your ability to make the repayments.
Employment stability is one of the most important factors lenders consider. So when you have just changed jobs is not the best time to apply for a mortgage.
Similarly, a significant change in your financial commitments, such as a new car loan or lease, immediately before you apply for a mortgage, is not a good idea. If at all possible, wait until you’re into your new home for those kinds of purchases.
Give Yourself The Best Chance
Having a solid financial situation is the best way to ensure success when applying for a mortgage. A good financial advisor can ensure your finances are in tip top shape so when the bank takes a look at them they can’t help but be impressed.
And if the advisor suggests you wait, and save a little more, or take care of outstanding debts, listen to their advice. Another few months might make all the difference to the outcome.
What If You Don’t Succeed?
The most common reasons for loan rejection are bad credit score, insufficient deposit, or an inability to service the loan. If your application is rejected, don’t re-apply straight away. Look at why you might not have been approved, and take steps to rectify whatever it was. Again, a good financial advisor or mortgage broker can help you here.
If you are considering applying for a mortgage, and would like advice on how to go about it, or discuss your chances of success, Manly Financial Services have the experience to help. Call us on (02) 9977 3388, or contact us via the below link.