In the 21st Century, ensuring approval on a home loan application can be complicated. Not only are savings, income and debt level all taken into consideration, but also if the person has a bad credit history. We tell you 8 things you should take into consideration before submitting a home loan application.

By Graham Doessel, founder and CEO of MyCRA Credit Repairs and

1. Savings.

Today’s mortgage market is much more conservative, and you may require more savings than you did, say 5 years ago.

People with a lower income or who have more debts may be required to save closer to 10% deposit -and should enquire with a lender on where they stand in the current market.

2. Income amount.

The amount of income required is generally determined by the amount of income earned relative to debts and expenses.

So, the more you earn, and the fewer debts you have, the more you will be able to borrow. If you are on a lower income, it may be worth paying off existing debts before submitting a home loan application. Also, the more deposit you have saved, the lower the income requirements on the same loan.

3. Stable employment.

The lender will also want to be assured of a stable income – they want to see evidence of a stable amount with a stable employer.

Generally lenders are requiring 6-12 months with the same employer. So if you’re thinking about buying a home, best to think twice about changing jobs, even if the wages are significantly better in the new position.

4. Debts and Credit limits.

The lender will generally assess your debt level to determine the amount you are able to borrow. Reducing your debt can increase borrowing power.

‘Debt’ also includes the credit limits which are present on any credit cards or line of credit loans you may hold.

So if you have a credit limit of say $20,000 on your credit card, the debt amount on that card will be stated as $20,000, regardless of the actual amount owing on the card.

With this in mind, it might be a good idea to reduce any credit limits on cards or loans prior to a home loan application.

5. Credit file checks.

The lender will perform a routine credit file check on you to make sure there are no negative listings. This can be a default, clear out, Judgment, Writ or bankruptcy which was placed on your credit file by a creditor.

The most common type of negative listing is a default, which can be placed on your credit file if you fail to make repayments on any form of credit past 60 days. This includes unpaid telecommunications and utilities bills.

Defaults and Judgments remain on your credit file for 5 years, with clear outs, Writs and bankruptcies showing for 7 years.

Most of the major lenders will refuse to lend to you if you have a bad credit history of any kind. In fact, you would probably have difficulty even getting a mobile phone plan.

6. Excess credit enquiries.

Whenever a person other than you makes an enquiry on your credit history – that enquiry is recorded your credit file. Currently, Australia is under a negative reporting system, so there is no way of seeing on your credit report if the loan was approved or not, only that the application was made.

Some lenders are refusing applications due to too many credit enquiries, such as two enquiries within thirty days or six within the year.

Ensure when you enquire about any home loan, that the lender is not making an actual application on your behalf until such time as you want to make it official.

7. Obtain a free copy of your credit report

If you intend to purchase a home within the year you should request a copy of your credit report. Under Australian law, this report is free every 12 months.

There are 4 credit reporting agencies in Australia, Veda Advantage, Dun & Bradstreet, Tasmanian Collection Services (if in Tasmania) and new entrant Experian. You can obtain your credit report from one or all of these agencies. The report will be mailed to them within 10 working days of the request.

It is essential for you to know what is being said about you on your credit file before applying for a home loan.

There is the potential for creditors to make mistakes with your credit file. So if you are credit active you should check your credit file, regardless of how diligent you believe you are with repayments.

8. Repair bad credit history.

If you find listings on your credit file that contain errors, or simply should not be there, current legislation allows you to have those inconsistencies rectified.

Defaults can be amended and marked as paid if the account has been settled, but this may not be enough to ensure finance approval.

Unfortunately bad credit history is not cleared by creditors unless you can provide adequate reason and lots of evidence as to why the listing should not be there.

If you have neither the time, knowledge or patience for credit repair you can seek out a professional credit repairer who will be able to work on your behalf to negotiate with creditors to have the negative listing or default removed.

A clear credit record will allow you to choose the best loan for you, with the best interest rate.

Contact MyCRA Credit Repairs for help in getting your bad credit history sorted out – call tollfree on 1300 667 218 or visit our main website

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