HOW TO ENSURE YOU CAN SECURE A HOME LOAN
It’s the Australian dream! Own or build your own home. Or at least it was, it’s becoming increasingly difficult to get the first foot on the ladder, and that is despite interest rates being at their lowest level in history!
Our guide takes a look at what is takes to ensure you can secure a home loan. By following a few simple steps, you can start to rebuild your credit history and achieve that goal of getting a home that you can finally call your own.
Here’s our guide to building a new credit history.
What’s the difference between a credit history and a credit score?
Your credit score depends on your credit history. Essentially, the way you have managed your money over recent months and years is your history, which would-be creditors can check when you apply for a loan. Your credit score is then worked out from that borrowing behaviour, so you need to build a good history to boost your score. If you’ve had defaults in the past, these will be recorded on your credit history and could affect your application for credit. Defaults won’t stay on your credit file forever however, they will be removed but when this is will depend on how you handle the management of your debts.
Don’t worry, you can see everything that lenders can see by checking your own credit file, and it only costs a few pounds.
Make payments on time
It’s not just borrowing that can affect your credit score; paying bills late can also show up and act as a red flag for future lenders. One of the most important things you can do is pay your bills and invoices promptly, and not fall into bad habits.
Save, save, save for that deposit
It may sound obvious, but the larger budget you have and combined with a good credit score the more likely you are to get into that home. If you have a healthy budget over 20% of the value of the home you want to buy you may also avoid other insurance charges banks apply. At the very minimum try and get 5% together and the banks will look on it favourably.
If you are good at budgeting then this shouldn’t be a problem for you. For those that have a little more difficulty check out our blog post on budgeting. Lenders like to see a good 3 to 6 months’ worth of bank statements to deliberate over your home loan application.
Make sure you aren’t overdrawn on your accounts in that period or they may ask you for a reason why and potentially decline your application.
Try to show a good rental history, don’t move around too often and keep on top of those payments. Lenders will take all of this into consideration whilst assessing your home loan application. Any late or missed payments may adversely affect you.
Use your credit card wisely
One way to show that you can manage debt responsibly is to not max out those credit cards. Most credit card providers won’t want to let you have a card if your score is poor, but specialist cards exist for customers that have struggled previously,with high interest rates and a low spending limit, the idea is that each month you use the card for your everyday spending and then clear the debt in full before you are charged anything.
Used properly, these show that you can use credit responsibly – but they do come with a health warning. If you leave a balance on the card then you will be charged a lot of money in interest, and it won’t improve your score in the same way.
Give it time
Your credit history is just that – a history. It can’t be rebuilt overnight and it will take time to prove that you can be responsible with debt and bills.
But once you’ve rebuilt your credit score, and put your problem debts in the past, you can carry on with life without worrying about lenders, and without being penalised by high rates.
It takes time to boost your credit score, but it is definitely worth it.
Talk to us
If you are having trouble getting a home loan, or your credit score is low because you’re currently battling problem debt, then it will be hard to improve without acting. If you’re struggling to manage your repayments and you can’t see a way out then ring our experienced, compassionate debt advisers for some free advice and support. Remember our goal is to help you achieve your goal and get you on the road to financial freedom.
The number is 1300 912 197 so talk to us today, or get in contact anonymously online using our contact form here. We can help you get your debts under control so you can get on with life.