While it’s critically important to pick a good property in a good suburb when you’re looking to buy or invest, it’s equally as important to make sure you’ve got the finance side in order.
You might have found the world’s best property, but if you can’t get a loan, then it doesn’t matter.
With that in mind, there are a few things you can do right now, to make sure the banks and lenders will be looking at your application favourably in the future.
And it all starts with consistency.
Consistency of Payments
Lenders will be taking a very close look at your credit history and how you’ve managed your debts in the past. These can be things as simple as credit card debts or even utility bills.
If you’re the kind of person who doesn’t pay your bills on time that doesn’t bode all that well for the future.
These days credit agencies have such a wide range of data available to them, they can clearly see not just that you don’t pay your bills, but when and how regularly you might make late payments.
If you pay your credit card late once, that’s no problem. But if it is a pattern that occurs over time, then that is an issue that you’ll need to address.
Because if you can’t manage a $10,000 credit card debt, then how are you going to be able to pay back a $1 million home loan?
This all comes back to consistency. If you are not making payments on time and have even defaulted in the past, that’s going to hit your credit score and lenders are not going to like the look of it.
Quite simply, if you get credit, be sure to respect it and pay your bills on time. No matter how small or insignificant they might seem. They all count when a lender is trying to build up a bit of a profile about the person they are potentially going to be handing over a million-dollar cheque to.
You can’t change the past, but you can change the future. So from today, if every bill you pay, make sure you pay it before it’s due. Don’t just pay on the day it’s due. Because by the time it clears, it might be two days afterwards and it’s late. If it happens once, no problem. But if that’s a regular occurrence, it just shows up as being consistently late.
Then you’re going to spend all your time trying to explain that to the lender.
So consistency of, and prepayment of all your expenses is critical to getting finance.
Consistency of Income
The second area to look at is consistency in your income. Ideally, you earn income every fortnight or month and it’s very regular in how it finds its way into your bank account.
Lenders want to see if you’re going to earn a bonus, it’s consistent. They want to see your income over the last couple of months during this COVID period and that your income hasn’t dipped down. If you have a good explanation of why you believe it’s going to come back up or show documentary proof that it’s going to come back up, that might be enough.
At the same time, you should be regularly saving towards the deposit on your home. Make sure you’ve saved consistently as the lender will see that you’re responsible and diligent and the type of person who can manage money.
Ideally, your address and where you live is also consistent. On top of that, you should have your salary going into your bank account our bank account and don’t overdraw it.
Also, be mindful of all your expenses. Review your expenses six months before you apply for a loan. You should be reviewing your expenses and getting yourself financially fit as least six months beforehand.
I like to look at it like this.
If you’re getting married and you want to drop 12 kilos, you don’t wait until one month before the big day and try to lose all that weight. You make a plan and try and lose a kilo a month for 12 months.
That way you’re going to be far more likely to not only lose the weight but keep it off.
Start building good consistent money management practices and you’ll be well on your way to keeping lenders happy and getting that home loan.