How to increase the chances of mortgage approval?

How to increase the chances of mortgage approval?

Applying for a mortgage can be daunting, especially when you are unsure of what the lenders look for. The positive news is that you actually can take certain steps to enhance your approval chances and get the best possible loan.

At OM Financials, we help Australians through the smooth processing of mortgages. Whether you are buying for the first time or refinancing, these practical tips will make your mortgage application stronger and put you in a better financial position.

Key Factors Lenders Consider

Lenders do not approve applicants based on a single factor. Lenders look at several dimensions of your credit health and decide whether you can repay the loan responsibly.

• Credit Score and Report: A credit score of more than 700 indicates that you borrow responsibly. Get your credit report, check for errors, and try to correct any errors in the report before applying.

• Financial Conduct: Regularly paying bills, credit cards, and existing loans on time strengthens your application. Avoid overdrafts or missed payments in the months leading up to your mortgage application.

• Job Security: The lender prefers that a borrower maintain employment in the same position for a minimum of six months. If employed otherwise, self-employed borrowers should provide at least two years of tax returns.

• Debt-to-Income Ratio (DTI): Your monthly total debt payment ought to be under 40% of your gross income. The lower your DTI, the better your application.

• Deposit Amount: A larger deposit (ideally 20% or more of the property price) reduces lender risk and eliminates the need for Lender's Mortgage Insurance (LMI).

A well-prepared application gives lenders confidence in your ability to manage repayments.

Save a big deposit to enhance your loan application

A larger deposit enhances your chances of receiving approval and lowers the monthly repayments and interest paid throughout your lifetime.

• Deposit: A 20% or more deposit will eliminate paying Lender's Mortgage Insurance (LMI), which could add thousands to the loan you get.

• Using a High-Interest Savings Account: Placing your savings in an account with a high interest rate will make your deposit grow faster without compromising on discipline.

• Reducing Non-Essential Expenditure: Decreasing dining out, subscription-based services, and impulse buying could help release additional funds toward a deposit.

• Explore Government Assistance: Programs such as the First Home Owner Grant (FHOG) and the First Home Loan Deposit Scheme (FHLDS) can help eligible buyers reduce their deposit requirements.

• Consider a Guarantor Loan: A family member who owns property can act as a guarantor, potentially allowing you to buy with a smaller deposit while reducing lender risk.

A solid deposit signals financial responsibility and makes you a more attractive borrower.

Reduce Your Existing Debt Before Applying

Debt management and reduction of existing debts enhance your borrowing power and mortgage suitability.

• Pay Off Credit Card Balances: You may not have a lot to pay off, but high credit card limits do lower your borrowing power. Having a lower limit or paying off the balances helps you get better.

• Clear Personal Loans and Car Loans: Large ongoing debt repayments can make lenders hesitant. If possible, pay off personal loans or refinance to lower-interest options before applying.

• Unused Credit Accounts: If you have old credit cards or accounts you no longer use, closing them can help tidy up your credit profile and reduce potential lending risks.

• Do not incur new debt: avoid applying for new credit cards, personal loans, or buy-now-pay-later services in the months leading up to your mortgage application, as they can affect your credit score.

• Consolidation of debts if one has several loans: If one has several loans, consolidation of debts into a single loan with a lower interest rate is sure to improve cash flow and also make repayments more manageable.

Reducing your debt will free up more income for your mortgage payments, which will pressure them to approve your application.

Show Strong Financial Management and Stability

Lenders want to see that you can manage money wisely and maintain financial stability over time.

• Keep a Healthy Savings Buffer: Having extra savings beyond your deposit reassures lenders that you can handle unexpected expenses and maintain repayments.
• Avoid Overdrafts and Late Payments: Any missed payments or account overdrafts in the months leading up to your application can raise red flags for lenders.
• Minimise Large Unexplained Transactions: Lenders will review your bank statements. Large cash withdrawals or deposits without a clear source may be questioned.
• Maintain Steady Employment: If possible, avoid changing jobs or industries just before 
• applying for a mortgage, as stability is a key factor for lenders.
• Keep a Clean Tax Record: If you’re self-employed, make sure your tax returns are up to date, as lenders require clear income documentation.

Conclusion

Getting a mortgage does not need to be too intimidating. Advanced preparation, fiscally being prudent, and having the best experts work together can ensure successful approval. Our team at OM Financials specializes in providing a mortgage product fit for any kind of individual Australians they may need to find. Whether you need help to repair your credit score, save for a deposit, or choose a suitable lender, we are here to help you every step of the way.

Contact us today at +61 478 876 967, book a consultation through our website here, or visit OM Financials for more information.