Interest rates are the lowest they've ever been, and with it, the opportunity to save on your home loan.
A couple of months ago my husband and I purchased a fixer-upper , 72 hours before the scheduled auction. Despite eyeing the market for several months, the purchase was a shock: we expected to be outbid within minutes if the property went to auction as planned.
But in less than eight hours our offer was accepted and we were the proud owners of a dilapidated four-bedroom, two-bathroom villa – our second property in Melbourne’s inner west.
Our next quest was to secure unconditional loan approval. My husband is a self-employed tradesman and I’d only just started work as a contractor following a year of maternity leave, so we had to work a bit harder than borrowers who meet the traditional lending criteria.
ASIC said companies made claims that were potentially in breach of responsible lending rules and included possible false and misleading statements.
Here are my tips to help secure a mortgage when you’re not a standard salaried borrower:
Shop around for a mortgage broker who understands the market
We talked to lots of lenders and brokers before selecting someone to tackle our loan application. Before meeting with a broker or lender, we outlined our work status and history during a brief phone inquiry. We soon discovered that not all lenders and brokers will work with contractors and self-employed customers, so it’s best to knock out those who won’t before proceeding to the next stage.
Don’t waste your time chasing the lowest interest rate if you don’t meet the criteria
Some lenders, particularly those with the lowest interest rates, have a 25-day loan application turn around and strict lending criteria. Find out if you’re eligible before spending any time submitting an application, especially if you’ve only got a 30 or 60-day settlement. It can take a month to receive unconditional approval through most lenders. You could always refinance your loan with a better rate after a year or two.
New homeowner signing contract of house sale or mortgage papers Mortgage. Generic. Property Photo: cnythzl
Collate your documents and financials so they’re ready for submission
Most lenders require two pay slips or the last two full tax returns for the self-employed, six months of bank statements, loan repayments and credit card history, a copy of the contract of sale for the new property purchase, a copy of your driver’s licence, and, if applicable, a copy of your rates notice and rental agreement for your existing property. Some banks also require Centrelink statements.
Reduce your credit card limit
When we first applied for pre-approval we had a credit card with a $10,000 limit. Despite paying the closing balance on time every month, the card was holding us back. Lenders view your credit limit as a possible debt in the future, regardless of whether you pay your credit card off each month. I called the bank and reduced the limit to $1,000. This process took about a week – something to keep in mind if you’re working to a tight deadline.
Let your accountant know your plans to buy a house
Some accountants are just too good at reducing taxable income, which is a common issue for self-employed applicants. If you’re planning on applying for a home loan it’s wise to pay more tax so your notice of assessment better reflects your annual income. This short-term debt will pay off in the long run.