How to get financially fit for a home loan.

You’ve decided that you’d like to buy a property, now what? From saving for a deposit to securing a home loan, the long and winding road to home ownership can be tricky to navigate. Read on to brush up on how to get yourself into good financial shape before applying for a home loan.  

1. Clear your debts.

Outstanding debts – whether that’s car loans, credit cards, personal loans or HECS-HELP debt – will work against you when applying for a home loan. Boost your borrowing power and increase your chances of getting approved for a home loan by paying down as much of your debt as possible. This includes Buy Now Pay Later services like Afterpay too. So, if these debts have crept up lately, be sure to clear them before you apply for a home loan.

2. Reduce your credit limits.

After you’ve paid down your debt, you’ll need to go one step further if you’re hoping to get approved for a home loan. Closing your credit cards or reducing the credit limits will support your home loan application. Be mindful that all available credit sources will be assessed by lenders (even if your balance is currently zero).

3. Get on top of your life admin.

Haven’t lodged your tax return from last financial year? You’ll need to get onto that pronto if you’re hoping to apply for a loan. 

‘It’s important to get your financial documents in order. This includes getting your personal and business (if you’re earning money through an ABN) tax returns lodged on time and having up-to-date personal financial information available,’ says Craig Archer, a ME Bank Mobile Banker from Melbourne.

4. Account for all your income.

Working for a salary in a nine-to-five office role isn’t for everyone. If you’re a freelancer, contractor, have a side hustle, or run your own burgeoning online business, you may need to jump through a few more financial hoops than your mates who earn wages in more straightforward, salaried roles.

‘Self-employed borrowers typically bring a higher level of complexity to the loan approval process, so be prepared for further questions when working with a lender,’ Craig explains. 

Whether you’re selling your art via online platforms, running a personal training bootcamp on the weekends, or operating a mobile dog grooming business, be prepared to provide documentation showing at least two years of trading.

‘Ultimately, lenders are looking for consistent and repeatable income that they can verify. If the business has fluctuating income, having a clear business plan can help to mitigate lender concerns,’ Craig shares.

Getting a loan can be a bit more complicated when you’re a freelancer or run your own company, but don’t let that put you off. Craig recommends chatting to an expert well before you decide to apply for finance. 

‘It’s important to talk with an experienced lender as early in the process as possible, so that they can guide you through the tips and traps.’

5. Crunch the numbers.

If you’re thinking to yourself ‘How much do I need to buy a house?’ then you’re not alone. There are plenty of online tools to help you take the guess work out of saving for a home – in fact, we have a few that might help you:
 

• Our Budget planner makes budgeting a breeze to help you understand what your outgoings are, to determine your incomings.

• Our Savings calculator makes it easy to work out how much you can save in the future if you stick to your plan.

• Our Home loan calculators can help guide you on figuring out your borrowing power, estimated repayment amounts, and stamp duty. 

6. Tap into support.

Saving for a house deposit is one of the biggest hurdles to home ownership. The good news is that there are many government schemes aimed at helping first home buyers get into the market. The First Home Super Saver Scheme enables you to make voluntary contributions into your superannuation fund to help buy your first home. 

7. Clean up your credit score.

Lenders will look at your credit history when assessing your application. According to federal government initiative Moneysmart, there are many ways to improve your credit score, including paying your rent on time, ensuring utility bills are paid before the due date and paying your credit card on time each month (either paying off the full amount or making a minimum repayment). With a better credit score, you’ll be one step closer to making your home ownership dreams come true.

8. Supercharge your savings.

Stashing your savings in your everyday transaction account means you could be missing out on bonus interest. When you’re saving for a home deposit, every extra dollar counts. That’s why many hopeful home buyers choose to park their home deposit funds in a dedicated account that earns them bonus interest, like a HomeME Savings Account.  

Start saving for your home with ME.

Dreaming of home ownership? Our HomeME savings account is designed to help you save for your next big thing.

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