Want a home loan? Avoid these 5 red flags

The Tiimely Home mortgage broker knows that anxious first home buyers can often fall prey to bad advice about applying for a home loan, so she is here to provide some insider advice.

Here are five red flag habits that hopeful first home buyers should stop immediately, according to Giamalis.

1. Credit cards

Many first home buyers use a credit card to try and improve their credit rating, but Giamalis warns that this is a myth.

“It’s a myth that you need a good credit score through a credit card to get approved for a home loan,” said Giamalis.

In her experience, a buyer with a credit rating of 700 with higher borrowing power is better than a buyer with a credit rating of 800 and a lower borrowing power.

“If you’ve got a $10,000 limit, then we case it on the $10,000 limit whether it’s on a $0 balance or not,” she said.

“If you’ve got credit cards, try and pay them off and cancel them before applying for a loan because it gives you greater borrowing power.”

2. Afterpay

Buy now, pay later schemes like AfterPay may seem harmless, but Giamalis warns that excessive use of these schemes sends out bad signals.

“If an applicant is using buy now pay later services more than what they have in their savings, this could be a red flag and lenders could question whether they can afford a loan.”

She also noted that services like Afterpay also reserve the right to report missed payments, meaning “if you miss payments, this could impact your credit score negatively”.

3. Spending your whole pay check

It isn’t only deposit savings that first home buyers should be thinking about – Giamalis recommends that aspiring buyers also start saving for their monthly mortgage repayment.

“For example, if they’re borrowing $600,000, their payment will be $3,000 a month. It’s favourable to see they’re saving $3,000 a month, whether that be in rent or savings,” said Giamalis.

She explained that a good savings history “shows a dedication and willingness to be able to pay your mortgage”.

“A three-month saving history is a great way to prove this.”

4. Cash withdrawals

The problem with cash withdrawals from a mortgage lender’s point of view is that “you don’t know where that money’s gone”.

“If you’re going to an ATM regularly and taking out $1,000 a month, or $1,000 a week, which we often see, you can’t track where that money has gone,” she said, explaining that it’s “better to have purchases that are traceable”.

5. Student debt

It’s common knowledge that you should pay off debts before applying for a mortgage – and HECS counts as debt too.

“HECS debt is a liability that you need to declare in the home loan application process,” said Giamalis.

She advised: “The impact of HECS on your ability to get a home loan may vary depending on your income level and the amount of your HECS debt. Seeking financial advice before deciding to pay off your debt is crucial.”