While the timing could never be better for first-home buyers to enter the market with so many incentives on offer, it’s not the time to rush in unprepared, according to a leading mortgage broker.
Louise Lucas of Property Education Company says many first-time buyers don’t realise they still need to meet the normal criteria when it comes to applying for a loan, no matter what government incentives they’re eligible for.
She says the most important thing lenders examine is the pattern of savings, having a deposit and a steady income.
Lucas is continually surprised by how many people approach their biggest financial commitment without doing any real research and with no understanding of the process.
She says buyers enthused about the current grants and discounts on offer should not to rush out and sign up for properties without first preparing themselves – otherwise they will end up making stupid mistakes.
“You need to go work on yourself first,” she says.
Research is the key and that doesn’t just mean spending time on Google but seeking expert advice or paying a little money for research reports.
During her years in the industry she has been stunned at some of the crazy things people do, which ruin their chances of obtaining a mortgage.
One man with a 50% deposit for a property who was pre-approved for his loan, decided to spend the deposit at the casino and didn’t understand why the bank was no longer willing to lend to him.
Don’t fudge your figures
Lucas says banks are rigorous in checking the finances of those applying for loans even after preapproval and it’s no longer easy to “fudge” how much you earn or spend as lenders have access to the borrower’s transaction history.
“It’s a very open system now and they can see exactly what’s going on,” she says. “Don’t be tempted to fudge the figures, they already know.”
She advised property buyers to spend three months getting their financial ducks in a row before applying for a loan – and during that period it’s wise not to apply for new a credit card, increase your card limit, or take out a car loan, even if you are preapproved for a home loan.
“All of that could stop you getting the actual mortgage,” she says.
“Stop using Afterpay and if you have a large credit card debt cancel the card, although you’ll still be charged interest and will need to continue to pay it off.
“Be very careful about what’s going on in your account.
“They can see exactly where your money’s gone. They know what you’ve spent on your credit card. They can see payments to Baby Bunting and online bedding and all the other things, even Porn Hub.
“They also check your Facebook account. People think ‘we just won’t include one child’ (on our paperwork). But lenders are actually checking up on that on your Facebook feed. If you think ‘they won’t see me, I’ve got great privacy’, good luck.
“You think the banks don’t have it? I promise you they can see it all.”
Don’t change jobs in mid-stream
Other mistakes buyers make include changing their job – or their name – in the middle of the loan application process.
If buying a home coincides with marriage, be sure your official identification is in the name you are using to buy the property.
It’s not a good idea to change jobs midway through the loan approval process, as some banks will not lend to people on probation at their new job.
“That’s just how they are, that’s just their policy,” she says.
Lucas doesn’t want to discourage buyers from using the new government grants (such as HomeBuilder) on offer but wants to encourage buyers to do the right due diligence and preparation, so everything runs smoothly.
Even once you are comfortable your finances are right to go, Lucas says it’s important to confirm you are actually eligible for the grants before signing up to a property.
Buyers will have to prove to banks they have genuine savings, even if they are using the First Home Buyer’s Deposit Scheme or the HomeBuilder grant.
“You need to show savings in your account, which have been added to, for at least three months,” Lucas says.
While some lenders will accept rental history as genuine savings, but you’ll need proof such as a list of payments or the rental ledger from renting agent.
Some lenders will accept a tax refund as savings although most won’t and when it comes to a gift or inheritance, banks may want to see that money stay in your account for three months to prove that you can actually have savings and not spend it.
Early release of super cannot be used as a deposit or as funds to complete a property purchase.
Lucas says her biggest piece of advice to all buyers is: always take the contract away with you to review, preferably with your legal adviser.
When it comes time to pick a mortgage broker check the credit guide they give you. It will outline how they are paid and how many lenders they are accredited with.
“Be concerned if they have only used one of two lenders, that means they are not sourcing the best loan for the client,” she says.