Securing a home loan needn't be mission impossible

Banks have been hit hard by the credit crisis and aren't as willing to take risks, making it harder to get a mortgage. Lending practices have tightened and some banks now require a bigger deposit.

What this means is you will need to prove beyond a shadow of a doubt that you're reliable and can afford the loan.

Do a budget

List your monthly income from wages, government benefits, investments - everything. Write down your expenses based on getting a home loan, including mortgage repayments, utilities, transport, education, food, clothing, entertainment and savings. Does it balance?

A few years ago some lenders were letting higher-income earners commit to mortgage repayments of up to half their gross income. But now banks are going back to the old rule that repayments shouldn't exceed 30 per cent of your before-tax income, excluding bonuses.

Be realistic

Apply for a manageable loan. Just because you can afford higher repayments doesn't mean you should buy a more expensive home. What happens if interest rates double? If you have some spare money in your budget, use it to pay off your mortgage more quickly and save the interest.

Show proof

Banks won't lend based on what you tell them. You have to prove who you are, how much you earn and provide evidence of savings.

For identification, a passport and driver's licence is usually enough. To prove your income you'll have to produce a recent pay slip. If you're self-employed, you'll need business and personal tax returns. You'll also need to produce bank and credit card statements, and evidence of any other investments or shares.

Get pre-approval

Shop around for the right mortgage and get pre-approval from the lender before you start house hunting, so you know how much you can afford to spend. You don't want to commit to a purchase and then fail to secure the finance.

If you've gone through the process and just can't afford to get the mortgage you want, you're better off taking the time to boost your savings instead of overextending yourself.

 

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