8 tips for home loan application success

Signing a home loan application form

Getting approved for a home loan can be stressful. Learn how to give yourself the best shot at success.

Applying for a home loan can be stressful. When you're looking to purchase a property, all your hopes are pinned on a lender telling you yes. But if you follow a few guidelines, you can greatly increase your chances of success and cut down on your uncertainty. Here are eight tips to give your home loan application the best chance of success.

1. Be truthful

A recent UBS survey found that up to one-third of Australians admitted to stretching the truth on their home loan applications. Whether it was overstating income, understating expenses or failing to disclose debts, Aussies were willing to play fast and loose with the facts in order to get a home loan.

It may be tempting to paint a rosier financial picture of yourself than the reality, but you should be 100% forthright on your home loan application. If you mislead your lender, not only are you likely to be found out and have trouble getting approved, but you could find yourself with a home loan that's too big to comfortably service if you do get approved.

2. Know where you stand

Part of being truthful on your home loan application is actually having a clear picture of your financial situation. Before you apply, try to get an accurate idea of your finances. Check how much you have in your super fund, document your income from all sources and form a realistic view of your expenses. You'll also need to look at your liabilities, including any credit cards, personal loans or car loans you have.

You should also get an idea of your creditworthiness. You can check your credit score for free here. While not all lenders have made the move to comprehensive credit reporting, knowing your credit score will give you a better idea of your application's chances of success.

3. Show stability

Lenders will want to know you have a good, stable employment history. If you've just started a new job, you might want to wait awhile before applying for a home loan. This is particularly true if you're still in your probationary period. If this is the case, you're unlikely to be approved, unless you've been working in the same industry for more than two years.

Typically, lenders will want to see that you've spent a year or more in your current job. There are definitely exceptions to this, but if you can't demonstrate stable employment, you should think twice before applying.

4. Build a big deposit

The bigger a deposit you have, the more attractive you will likely be to lenders. Lenders generally like to see at least a 20% deposit. While many lenders will approve home loans with as little as a 5% deposit, these are seen as riskier loans and you could have a harder time qualifying.

A small deposit will also cost you in the long run. If you have less than a 20% deposit, you'll have to pay for lenders mortgage insurance (LMI). This is an insurance policy that covers your lender in the event that you can't repay your home loan. It's charged on home loans with smaller deposits to help mitigate the risk your lender is taking. LMI can cost you tens of thousands of dollars, so it could be well worth taking the time to save a larger deposit.

Learn how to save a home loan deposit with our comprehensive guide to saving

5. Eliminate debt

The fewer liabilities you have when you apply for a home loan, the better your chances of success. A lender will look at any outstanding credit accounts you have and use them to assess your ability to repay a home loan.

You're well served to spend some time paying down your debt before applying for a home loan. It's important to note that a lender won't just look at the amount of debt you have outstanding. They'll look at the combined credit limit of all your open credit accounts. So if you have credit cards with a high limit and a low balance, consider reducing your limit before you apply.

6. Don’t over-apply

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It can be tempting to cast a wide net by applying with a variety of lenders, but you should avoid doing this. Each time you apply for credit, an inquiry is made on your credit file. Too many inquiries can have a negative impact on your credit.

It's extremely wise to compare lenders and research to decide which home loan product suits you. But only apply once you've done your research and settled on a home loan.

7. Pay attention to detail

Mistakes on your home loan paperwork might not derail your home loan application entirely, but they could certainly make it a much lengthier process. Make sure you pay close attention and fill out the form completely and accurately.

You'll also need to pay close attention to the documents required by your lender. Provide the exact documents requested, not a substitute you think will be sufficient. Getting all your documents in order before you apply can get you to unconditional approval much faster and keep you from endless back and forth with your lender.

8. Stay within your means

Don't apply for a home loan that's larger than you can handle. Not only will you have trouble getting approved, but even if you are approved, you could put yourself in severe financial stress.

This means you'll want to decide on a realistic limit before you start looking for properties. Don't put yourself in the position of signing a contract for a property only to find you can't borrow a sufficient amount to cover the purchase.

Need a home loan? Start comparing loans now

Adam Smith

Adam has more than five years of experience writing about the Australian home loan market.

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