When buying property in Australia, prospective home buyers face several challenges. While some may be struggling to save a big enough deposit, others are restricted by affordability in the event of rising interest rates and a higher cost of living. For most, economic uncertainty and tighter lending conditions have made it harder than ever to secure finance. Here are some tips on how to prepare your finances ahead of applying for a mortgage in 2024.
What changes to lending can we expect in 2024?
- Lenders are being extra cautious amid rising interest rates and living costs to avoid issuing risky mortgages.
- Lenders are relaxing rules on rental income, potentially increasing borrowing power for investors with substantial rental earnings.
- Climate worries could lead lenders to limit loans in high-risk Australian regions vulnerable to extreme weather, affecting households and businesses.
- Treasury is gathering input on enhancing regulations for BNPL services in Australia, potentially impacting lending rules for borrowers with BNPL debt.
- In addition to slower economic growth affecting spending and businesses, more borrowers will potentially experience mortgage stress going into 2024.
How can you get loan ready in 2024?
There’s no doubt that lenders have seriously cracked down on home lending. To avoid rejection or delays in mortgage applications, home buyers need to watch every dollar spent closely.
- Before applying for a mortgage, carefully review your expenses and adjust spending your habits to improve loan approval chances. Aim for at least 3 months of prudent financial management.
- Cut back – or avoid – Afterpay or other BNPL purchases as these could seriously hurt your chances of being approved for a loan. Work on reducing this debt by paying it down as soon as you can.
- Be honest and ready to disclose everything that involves your finances, including your income, savings, investments, expenses, existing debts, and any other financial commitments.
- To prove to lenders that you have a clean and stable financial track record, ensure your credit rating portrays you as the ideal borrower. Repay your debt on time and in full and avoid missing repayments or making late repayments.
- Reduce your credit card limit and stick to just one credit card with a reasonable limit. The higher your limit, the less money lenders can responsibly lend to you.
- Job stability is important to lenders so ideally you want to be in the same job for at least six months, or if you have recently changed jobs, in a previous similar role for a minimum of two years.
- Keep squirreling away any savings for your deposit, and if possible save 20 percent of the purchase price of a property to avoid having to pay LMI. The bigger your deposit, the less you have to borrow, so the lower the risk you are to a lender.
Where can you go to get more first-home buyer help?
For more first-home buyer help with saving a deposit, take a look at these Government-backed schemes:
- First Home Owner Grant – A one-off grant payable to first homeowners who satisfy all the eligibility criteria.
- First Home Guarantee Scheme – Part of an eligible first home buyer’s home loan from a Participating Lender is guaranteed by NHFIC, enabling eligible home buyers to buy a home with as little as 5% deposit without paying Lenders Mortgage Insurance.
- First Home Super Saver Scheme – Apply to have a maximum of $15,000 of your voluntary contributions from any one financial year included in your eligible contributions to be released under the FHSS scheme, up to a total of $50,000 contributions across all years.
How can a Lending Connections broker assist you?
We’ll work with you to:
- ASSESS your needs and unique financial position, then recommend loan options and strategies.
- EXPLAIN the entire process from start (Application) to finish (Settlement).
- ASSIST with all paperwork required. Before submitting your application, we will look at your living expenses in the same way lenders’ credit assessors would and ask you about the spending habits that could decrease your chances of getting a loan approved.
- COLLABORATE with all those involved in purchasing your home such as solicitors, real estate, and lenders.
- CONDUCT regular reviews after settlement, making sure you are supported and still enjoying the most competitive deal for your situation.
Contact a Lending Connections broker today to find out more about getting home loan-ready in 2023.