I’m a mortgage broker: Stop doing these 5 things immediately if you want a home loan

Entering the property market has become increasingly challenging due to high interest rates and a competitive market, with searches in Australia for ‘how much deposit do I need to buy a house’ increasing by 77% in 12 months and searches for ‘how to get a home loan’ rising by 41% over the same period.

Barbara Giamalis, Lead Broker at Tiimely Home, a low-interest home loan provider with over 25 years of experience, has shared five common misconceptions and practices that prospective homebuyers should avoid when applying for a home loan.

1. Cancel your credit card, you don’t need it for a credit rating
   Giamalis debunks the myth that a credit card is necessary to build a good credit score for home loan approval. She advises paying off and cancelling credit cards before applying for a loan to increase borrowing power, as lenders base their assessment on the credit limit, regardless of the balance.
2. Use ‘Buy Now, Pay Later’ schemes such as AfterPay wisely
   Lenders may view the use of buy now, pay later services as a red flag if an applicant’s usage exceeds their savings, questioning their ability to afford a loan. Missed payments on these services can also negatively impact credit scores.
3. Start saving your mortgage repayment
   In addition to saving for a deposit, Giamalis recommends saving the equivalent of the expected monthly mortgage repayment to demonstrate financial discipline to lenders. A three-month saving history can prove dedication and willingness to pay the mortgage.
4. Gambling and cash withdrawals are red flags
   Gambling, including lottery tickets, is considered a non-discretionary expense and will be factored into an applicant’s living expenses by lenders. Regular cash withdrawals are also a red flag, as the money cannot be tracked. Traceable purchases are preferred.
5. Your HECS debt can impact your borrowing power
   Higher Education Loan Program (HELP) debt is a liability that must be declared during the home loan application process and can impact borrowing power. Seeking financial advice before deciding to pay off the debt is crucial.

Giamalis notes that with current interest rate increases, borrowing has become more challenging for many, as banks factor in a 3% buffer on top of the current rate when assessing serviceability. By implementing these small tips, prospective homebuyers may increase their chances of being approved for a home loan in a tough market.