15 Common Home Loan Application Mistakes to Avoid

Many potential homebuyers begin their real estate journey excited and somewhat unaware of what they should do to increase their chances of acceptance and avoid home loan mistakes.

Starting the journey to buy a home is daunting, but you will find the process easier and less confusing if you work with experts concerned with your best interest.

15 Common Home Loan Application Mistakes to Avoid

1. House Shopping Before Finance is Approved: Many house hunters are so excited at the prospect of finding their dream home that they fall in love with a property before they know if they can get loan approval. This sets you up for disappointment because even if you are highly likely to get the loan, the amount of time needed to approve it means another buyer can easily seal their deal first.
2. Bad Credit: One of the first things lenders do is look at applicants’ credit history. While you may get financing with average credit, those with good credit are automatically favoured over those with poor or bad credit. This is because lenders look at your credit history (past behaviour) to indicate your likelihood of repaying the loan (future behaviour).
3. Too Many Applications: Many applications for loans or credit reflect poorly on your creditworthiness. Lenders see applying for many loans in a short period as reckless behaviour, indicating a poor credit risk.
4. Not Determining if You Qualify for the First Home Owners’ Grant: If you are purchasing or building a new home that is also your first home, you may qualify for the First Home Owner’s Grant. This is a $10,000 payment to assist first-time buyers in buying a new home or building their first home.
5. Underestimating How Much Buying a Home Costs: Buyers do not always consider the many costs of home buying. Things like Stamp Duty, Lender’s Mortgage Insurance, inspection fees, application fees, and many other expenses will come up that add a great deal to the actual price of the home.
6. Not Looking Into All the Funding Options: Many borrowers make the mistake of only looking at what the big banks are offering. There are many excellent private lending sources and smaller boutique financial entities where you can find excellent rates and reasonable terms. Consider talking to a financial expert who can explain your options.
7. Taking on More Debt Than You Can Afford: Just because you are approved for an exceptionally high loan does not mean this is your best choice. Consider all the numbers before deciding to take on a loan, especially if you feel uncomfortable with the amount.
8. Missing Loan Repayments: If you routinely miss payments on your loans, you demonstrate a poor ability to service a home loan.
9. Applying for a Home Loan Based on Just the Interest Rate: Many lending institutions grab attention by advertising low-interest rates. These are typically introductory rates with very specific conditions attached. Check out numerous rates and their conditions because the advertised rate may not be the best available.
10. Inaccurate Expense Reporting: If you mistakenly enter erroneous amounts for your expenses, you appear careless and irresponsible. If you purposely entered incorrect expenses, you are seen as dishonest.
11. High Limits on Your Credit Cards: Lenders look at your $50,000 in combined credit card limits almost as if you had already accumulated that much debt. This is because you can access that amount of credit and easily reach your maximum limit.
12. Closing a Credit Card: You can negatively impact your credit score by closing a long-standing credit card if it affects the length of your credit history. This may also change your debt-to-credit utilisation ratio.
13. Making Big Moves With Deposits or Withdrawals: During your approval process, you need to avoid any behaviours that seem unusual. Big money moves point to instability.
14. Applying During a Period of Instability: The timing of your application matters. Applying during an economic or political crisis will lessen your chances of approval and leave a denied loan application on your credit history.
15. Typos and Mistakes on the Application: While this may seem small, almost petty, lenders look at your application as a reflection of you. A meticulous loan application points to a reliable and organised person. A sloppy, error-filled application sends a message that you are careless.

How Do Banks Assess Home Loan Applications?

When you present your loan application for approval, you must have an organised, complete, and accurate document. Many borrowers ask the question, “How do banks assess home loan applications?” Banks and other large lending institutions look at several criteria during the approval process. This includes:

• Your ability to repay the loan: Lenders will look at your past behaviour as a way to predict how responsible you will be in the future by checking your credit history. Additionally, they will concern themselves with your employment, living arrangements, loan history, and how many credit enquiries you have.
• Your collateral: The security you put forward to guarantee the loan is essential to lenders. If this is your first home, the bank will use the appraised value of the home you are trying to buy as collateral.
• Loan serviceability: Your ability to service your loan (repay) is vital in the approval process. Your income, living expenses, credit card debt, and personal loans are keys to determining your debt-to-income ratio. Borrowers with lower ratios have the best chance of approval.
• Your deposit: Lenders prefer a deposit of 20% or more. You will be evaluated for needing Lender’s Mortgage Insurance if your deposit is lower. This is to protect the lender in the event of a default on your part.

Is it Harder to Get a Home Loan Now in Australia?

You are correct if you believe that getting a home loan application approved takes longer and is more difficult than in recent years. Lenders are concerned about costly home loan mistakes and the challenges facing borrowers. There are a few reasons why, including:

• Government policy changes are impacting banks.
• Lenders are concerned about borrowers defaulting on their loans in the face of increasing costs of living.
• Lenders are scrutinising loan applications and requiring more documentation from applicants.
• Concerns about casual and contract workers losing their jobs in the face of an increasingly challenging economic climate

This is precisely why it’s helpful to have a mortgage broker in your corner to chase up the banks on your behalf and make sure that your application gets over the line in a timely fashion.

How Can Quantum Finance Australia Help?

You are more than a number to us at Quantum Finance Australia. Our home loan application experts take the time to get to know you and what you need to help make your dreams of homeownership a reality. We will guide you through the application process, remove the confusion and stress, and search through hundreds of possibilities to find the right loan option for you.

For more information or to speak with one of our experienced team members, reach out to a mortgage broker today. We have helped hundreds of homebuyers find the financing they need, and we can help you too.