Finance is one of the biggest factors of building a home. Historically, the banks focused predominantly on your income and then used a relatively generic amount for your expenses. However, following the Banking Royal Commission, banks and mortgage brokers are paying more attention to your spending habits. It might seem frustrating, but it’s to make sure that loan applicants can make their repayments.
So, we’ve compiled some of the items lenders are looking at to approve a loan. You might need to change your habits in the months leading up to applying for a loan, so it’s better to reach out to us sooner rather than later.
Reduce your Uber Eats
We get it- most of the Move Homes team are guilty of indulging in Uber Eats. But unfortunately, discretionary expenses like this (aka non-essential spending) can reduce how much you can borrow. The same goes for having a Netflix account or other streaming services, using Uber or frequent purchases on eBay. All those small expenses are calculated when your serviceability is determined. And yes, that gym membership you keep forgetting to cancel will also be analysed.
Be careful of Afterpay
For those not familiar, Afterpay is like an online layby system. You purchase your item today, and pay it off in instalments over 6 weeks. It’s pretty nifty, but any late payments can appear negatively on your credit history. There is also the chance that by using a buy now pay later service, you could appear as though you can’t control your money. This is especially if you are borrowing a large amount from Afterpay every month.
Stop the jokes
You know when you’re transferring money to your friend and instead of writing “dinner”, you instead opt for a witty drug reference? Yeah, you might want to stop doing that. Banks will go through your statement line by line and categorise the expense. So if you have repeated transactions for drug procurement (instead of dinner), they may consider that to be an on-going expense.
Avoid the gamble
Frequent gambling can be a red flag to many lenders. Whether it’s going down to the TAB or using a betting app, applicants could find their borrowing capacity severely reduced. In one example, an applicant earning $82,436 who bets $50 a week would reduce their borrowing capacity by almost $32,000. Plus, there are some lenders that won’t approve a loan to gamblers.
But don’t be put off by the above suggestions. There are many grants and schemes that specifically help people build a home with a small deposit!
Proper planning prevents poor performance. So even if you’re not ready to buy right now, you could improve your future lending capacity by changing your habits today. Reach out to our team to see how we can get you on the right track.