There are basic eligibility requirements to apply for a home loan in Australia. You need to be at least 18 years old and an Australian permanent resident or citizen. Temporary residents can apply but they need approval from the Foreign Investment Review Board (FIRB). You can also apply as a joint tenant if your partner is an Australian citizen. But meeting these requirements alone doesn’t assure that you get approved for a home loan.
Lenders assess a variety of factors to verify your eligibility for a home loan. It’s not just your income that counts. Let’s take a look at seven key factors that lenders look at in your home loan application:
1. Income
Your income plays a large part in determining whether you get approved for a home loan and how much you can borrow. You need to provide sufficient evidence of the income you are earning. Banks accept different types of income as long as it is consistent. Income stability is a very important aspect of eligibility as it shows you can repay the loan. In Australia, the average income is between $55,000 and $85,000. Most lenders assess your application under the assumption that around 30% of your income will be used to make loan repayments. If you want to secure a $400,000 home loan to purchase a house, most lenders will require you to make somewhere between $66,000 and $100,000 a year.
Understanding your income and how it affects your borrowing capacity is crucial. Get a personalised assessment and explore loan options with our 360° Home Loan Assessor.
2. Savings History
Lenders want to see evidence of at least three to six months’ regular savings. The evidence of your regular savings shows the lender that you are financially disciplined enough to be able to meet your monthly repayment. Having money in your savings account is not enough. Banks require genuine savings. Banks have varying definitions of what this means and different requirements for proving it. If you pay a 20% deposit, lenders typically ask that a minimum of 5% of the property value (a quarter of the deposit) qualify as genuine savings that you have accumulated over time. This can include a savings account, term deposits, shares or managed funds, plus cash gifts and inheritance funds held for at least three months.
3. Past And Current Loans
Lenders will check whether you have a good record of paying off your loans. If you have a history of defaults or continuous late loan repayments, you have a lower chance of approval. However, timely loan repayments mean you have a good record of meeting loan obligations. Lenders see you as a low-risk investment. If you have several personal loans that you’re paying off when applying for a home loan, you will have a hard time getting approval. Lenders prefer applicants with few other debts. You should consider paying off all or some of your debt before you apply for a home loan. But this doesn’t mean that you need to be debt-free to get approval. If you have a good history of managing debts with no missed payments, and only a small amount of debt when you apply, your chances of getting approval are much better.
4. Employment Status
Lenders seek borrowers with stable jobs and consistent income. Most lenders prefer to see that you have been in a full-time job for at least three months and have completed any probationary period. Lenders are more reluctant to provide home loans to people with casual employment or who have been working irregular hours because their income is less certain. They also strictly assess self-employed borrowers and often deny loans to people who have been self-employed for less than a year, as they don’t yet have tax returns to prove their income. It’s also hard for people with unusual employment, such as those with multiple part-time jobs and contract workers, to qualify under the banks’ lending criteria.
Note: Got an unusual job and banks won’t help? Don’t worry. Our specialised mortgage brokers can help you find the right loan if you have unique employment status! Call us on 1300 889 743 or fill in our free online assessment form today!
5. Credit Score
Your credit score is a decisive factor for home loan eligibility. A good credit score assures lenders that you have the ability to repay the loan comfortably and increases your chances of getting approval. Credit score numbers are between zero and either 1000 or 1200. The higher the number, the better your credit score. A score below 509 falls into the high-risk and above 833 is excellent and considered extremely low risk. A lower credit score means you have some negative marks in your credit file and lenders might ask for more information before providing approval. Your credit score is likely to be high if you have a strong track record of making all your payments on time. There are multiple factors that can hurt your credit score, such as missing loan repayments, paying your bills late, overusing credit and submitting too many credit applications.
You can check our credit score calculator to estimate your credit score.
Note: There are a few lenders on our panel who will consider your application even with a low credit score. Talk to our mortgage brokers today!
6. Age
Age is an important factor in determining your home loan eligibility, as well as the length of the term for the loan. There is no maximum age limit for getting a home loan but lenders generally view potential borrowers over 55 years of age as a higher risk, and apply stricter lending requirements. Their main concern would be if the loan term extends beyond your retirement age. In this case, they will assess your exit strategy during your serviceability, because they need to know how you plan on meeting repayments when your income stops after retirement. If you have enough assets, good savings and a good credit score, even home loans for older people shouldn’t be a problem.
7. Property Details
The property you are purchasing is the security for your home loan. Lenders will assess the quality of the property. They will look at whether it is in a good location and is likely to increase in value over time. They will examine its condition, features, and market value and decide how much they are willing to lend you to purchase the property. Lenders do not waste time approving home loans for properties that do not meet their eligibility requirements.
Most lenders will not approve loans to buy properties in some areas. To check whether the location of your property falls in the high-risk or low-risk zone, you can use our postcode location guide calculator. There is also a lender in our panel that can accept any location in Australia.
How Do I Improve My Credit Score
1. Pay Your Bills On Time
You need to pay your bills on time every month because payment history is the most important factor in your credit score.
2. Don’t Miss Repayments
You need to make loan repayments on time. If you are late or miss any repayments, it can hurt your credit score.
3. Dispute Misreported Payments
Your credit score could be affected by inaccurate information in your credit file. Monitor your file carefully to make sure information is correct and report any errors as soon as possible.
4. Don’t Overuse Credit
Overusing your credit has a negative impact on your credit score. You can use your credit card’s high balance alert feature so that you know if your credit usage ratio is getting too high.
5. Don’t Make Too Many Credit Requests
Don’t make too many credit applications in a limited time. Every time you apply for credit, a hard inquiry goes into your credit file. Too many of these can cause a lender to reject your application.
Read more about improving your credit score.
What If You Are Still Not Sure About Your Home Loan Eligibility?
A home is one of the biggest purchases you will make in your life. Lenders want to assess as much relevant information about you as possible before approving you for a loan. Home Loan Experts’ mortgage brokers can help you find the perfect solution and get approval from lenders.
Speak to our award-winning mortgage brokers by calling 1300 889 743 or fill in our free online assessment form and we can help you to find out if you are eligible for a home loan today!