Home Loan Myths

Things have changed quite a lot in the last ten or twenty years, and the requirements of the past may not apply in today's home loan application process. Your dear old dad's financial advice may be great, but he may not be aware of how times have changed. Learn what's really important today!

It used to be a given that you needed great credit to secure a home loan. Great credit does make things a lot easier, but you can still get a loan despite your dubious credit history. Showing that you've been making an effort to improve your credit rating may be enough to convince a lending institution to take a risk on you. Make sure you haven't had any bad credit incidents in the months leading up to your mortgage request.

You used to need 20% or more as a down payment before a bank would consider you for loan. This has dropped substantially. Some types of mortgages will allow for very low, or even no down payment required. You should try to save as much as you can though, as every little bit you can add to your down payment will reduce the interest rates that you pay.

People will tell you that you need to have a credit card history to prove that you’re a valid credit risk. This is also not true. You can prove your history of repayments with your utilities records, car payments, rent etc. In fact no credit card history is a lot better than a dubious one!

It also used to be that banks valued employment stability. A person who could show years of consecutive employment with the same employer was considered a pretty safe bet. The economy has changed a lot, and people are more transient than ever before. This doesn’t mean that you're a credit risk; you may just have a great career track. Today's loan officers are aware of the demands of today's workplaces, and will look at your earning history and potential as being a lot more important than workplace stability.

Some things haven't changed at all though. Banks will deny you or charge you excessive interest rates if they think you're at risk to default. To prove that you’re a safe bet, make sure you try to reduce all other debt, before going in to try and secure a new loan. Make sure that your recent history reflects disciplined payments, all on time and in full, and try to save as much as you can for the down payment. There's nothing banks like more than the security cushion of a big down payment.

There's nothing to lose by trying. Stop wasting your money on rent every month and start to build your strategy to secure a home loan. A great way to make sure you're on the right track is by sitting down with your local bank manager or loan officer, and having a look at your current financial situation together. They'll tell you what you’re eligible to get, and if you have some work to do, then at least you'll know exactly what they're looking for. Remember, they want to give you the money, and your showing a willingness to work with them might just act in your favor when a big loan hinges in the balance a few months down the road!

Article correct at its author date: May 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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