When a lender looks at a loan application, they look at two main areas.
The first is that they make sure that your income will be enough to cover not only the loan repayments with a buffer to allow for future rate increases but your existing commitments and your Monthly Living Expenses.
The second is to also look at what you have done with your money up until now so even though you may earn heaps of money and may easily have enough to service the loan, some lenders will want to know what you have been doing with your money if you have nothing in the bank.
Both issues are linked because if your life is all about restaurants, takeaways and coffee, then this will be reflected in your Monthly Living Expenses and it may be hard to convince a lender that you will be able to stop these in the future.
So, if you are thinking about getting a Home Loan, here are some basic housekeeping rules that you need to keep in mind:
- Do not overdraw your accounts unless you have an overdraft approved. It does not matter if it is 1 cent for 1 day, it will still be a black mark. Repeated overdrawing will be a red flag for any lender
- Do not go over your credit limit on any credit cards
- Consider whether you need your credit card and, if you do, consider whether you can reduce the limits
- Make sure that all loan and credit card repayments are made on time
- Cut down on the luxuries in life and excessive spending to show that you can reduce your living expenses.
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