Applying for a home loan: what you need to know

Keen to get your foot on the property ladder? Or maybe you’ve already got your eye on your dream pad and you’re getting ready to borrow? Either way, when it comes time to apply for a home loan, knowing what lenders look for before you apply will really help your chances of getting the tick of approval.

Disclaimer: The information contained in this article is of a general nature only and should not be taken as financial or legal advice on any of the topics discussed. Always consult a financial adviser before making any investment decisions.

So what do lenders look for in a home loan application?

It all comes down to gauging how likely you’re going to be to meet your loan repayments. Or, in other words, working out what your risk profile is as a borrower. Lenders will look closely at a range of key criteria to help them determine your risk, such as your income and employment, your current level of debt as well as your savings and spending habits, plus any assets you may already have.

So what can you do to put your best foot forward before you apply?

Borrow within your means - And to help you do just that, you’ll need to know how much you’re likely to be able to borrow from any given lender. Using a borrowing calculator is the best place to start and once you get a clearer picture of what your borrowing capacity is, you can make sure you’re searching for property within that price range. The upshot? When you look to borrow only as much as you can afford to repay over the life of your loan, you’ll be much more likely to get approved.

Improve your Loan to Value Ratio (LVR) with a bigger deposit - In a nutshell, the bigger your deposit the more favourable your LVR will be. An LVR is simply the amount that you borrow as a percentage of a property’s purchase price - and it will be a key factor for lenders when they’re assessing your home loan application. But what’s the size of your deposit got to do with it? A lot as it turns out! Even if it means saving for longer, having a bigger deposit can help improve your LVR and lower your risk as a borrower. Plus, when you have a deposit of 20% or more, you won’t have to pay Lenders Mortgage Insurance either, so it’s a win win!

Employment and earnings - Now’s the time to lock in that permanent gig or ask for a pay rise, because your earnings and employment reliability are two key criteria that lenders will assess your application against. Why? Because when you have a steady, full-time job with a reliable income, you’ll be more likely to meet your loan repayment obligations over the life of your loan. Tick!

Did you know that with Teachers Mutual Bank, if you’re a casual or relief teacher, we accept just three months casual employment history as part of your home loan application*? 

Speak to a Lending Specialist for guidance on how you could use your casual or relief teaching income to apply for a home loan.

Start saving regularly - When a lender looks at your bank statements they want to see evidence of regular savings not unnecessary spending (think less Uber Eats and more dollars in the piggy bank). Before you apply for a home loan, it’s a good time for some financial tough love - review your budget to see where you can cut back on spending, then use our savings planner tool to put a savings plan in place.

Pay down debt and limit credit - Want to give yourself the best chance of home loan success? Paying down debt as a priority and reducing your credit limit will help you get there. So if you’ve got credit card debt, store credit or personal loans, challenge yourself to clear as much debt as possible, and reduce your credit limits before you apply for a home loan. 

Don’t miss credit card repayments - Missing credit card or loan repayments can be a red flag for lenders so making sure you never miss or make late repayments is one simple thing you can do to improve your chances of approval. Think about setting up automatic loan and credit card payments in Internet Banking or setting SMS alerts to let you know when payments are coming up. Your future self will thank you for it!

Find out how to set up automatic payments here.

Get your home loan ducks in a row - Before you apply, get your ducks in a row so you can hit the ground running. Lenders will ask you to supply evidence of things like your income and employment status as well as tax returns and bank statements, so get your paperwork together now to give yourself a head start.

Need a little home loan help?

That’s what Lending Specialists are for! They’re home loan experts who can help you weigh up your options to make sure you get the best value loan for your situation.

You can book a call back to talk to a Lending Specialist either at home, on the phone, or on a video call.

Book a call back

*Minimum period of employment for regular or casual relief teachers is 3 months. Other credit criteria apply.