Preparing to buy a property can be an exciting, yet daunting task all at once. After months of research and careful planning, you've decided to make your move, most likely with a little help from the bank.
Taking out a home loan is common practice for many Australians, but there is a lot that goes into getting the nod from a credit provider.
Here are a few things to keep in mind before applying for a home loan.
A background check on your credit history
When it comes to making a decision on whether or not to approve your loan enquiry, banks and lenders may look at your Equifax credit report, as one part of the information they review, to gain a better understanding of whether you'll be a good debtor.
Your credit report details events both positive and not so positive, from timely monthly loan and credit card payments to defaults. You can request a free copy of your Equifax credit report online today, so that you can see how you look on paper to your credit provider.
You can keep up to date with any changes in your credit file with My Credit Alert, a subscription based monitoring service that notifies you via email when certain updates are made to your Equifax credit report.
Taking care of your debts before signing up for a house
Before signing your mortgage agreement, it may be a good idea reduce any other debts, not just for the sake of your credit report, but also to ease the financial burden before you start paying off your house.
"Lenders take into account the overall limits, not just the balance owing on your debt," advises the National Australia Bank. "Reduce the credit limit on credit cards, overdrafts or other loans if you don't really need it."1
In addition, the National Australia Bank also recommends utilising a debt consolidation loan that could help you to have a better handle on your finances, as you'd only have one bulk payment to focus on. Alternatively, transferring your balance can be helpful if you already have several pre-existing debts, potentially reducing your monthly interest payments.1
Where possible, you should ideally look at getting rid of your debt altogether, as well as staying on top of smaller payments, such as your minimum credit card balance each month.
Even though these instalments may seem insignificant when it comes to applying for your home loan, any late payment behaviour could be noted in your credit history given the change in the credit reporting laws.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.
1National Australia Bank, Improve your finances before applying for a home loan. Accessed June 15, 2015.