Five ways to improve your chances of getting a home loan

Applying for a home loan can be a nerve-wracking experience, especially if you're new to the whole process.

With so many steps involved and the process varying between lenders, it isn't hard to get a bit lost and submit an application that could be deemed incomplete, inaccurate, or worse, be flagged as a "high risk" applicant.

But there are ways you can increase your chances of being approved for your mortgage. Here are five things to consider before applying.

1. Ensure your deposit is large enough

One of the most common reasons a home loan application is rejected is that a lender's minimum deposit threshold wasn't met.

Many lenders have strict guidelines when it comes to their maximum loan-to-value ratio (LVR), which essentially is the limit on how much of the property's value can be borrowed and indicates how much of a deposit is required as a result.

Most providers need at least a 10-20% deposit made up of genuine savings, which is the money an applicant has saved themselves gradually over a period of time, in most cases a minimum of three months.

It's important to note that this can't just be a one-off lump sum, or a cash gift from a wealthy relative or friend.

There are options for this type of deposit but it would require a specific lender.

So to tick the box for lenders, it's a good idea to save enough cash for your deposit and perhaps a bit extra as a safeguard to cover unexpected costs.

2. Be smarter with your spending habits

Are you known by your friends as someone with a shopping obsession? It might be time to reevaluate where your hard-earned cash is going and adopt some smarter spending habits.

If your lender believes you can't exercise discipline when it comes to your spending habits, this may impact your borrowing power.

Lenders will more often than not trawl through your bank statements, as well as your buy now, pay later (BNPL) receipts, hunting for anything out of the ordinary or any bad spending habits.

3. Increase your credit score

A credit score can represent your overall trustworthiness as a borrower, which means it can play a crucial role in the approval process.

When you apply for a home loan, performing a credit check is often the first thing a lender will start with.

Any defaults, such as outstanding bills, late payments or even a history of applying for other loans with other providers in the past, whether it's approved or not, is recorded on your credit history.

Luckily there are ways you can improve your credit score such as ensuring payments are met in a timely manner and paying down your revolving credit as much as possible.

4. Double check you've got the right documents

Whether you've genuinely forgotten to include all the documents, or deliberately withheld information, failure to disclose can be viewed as fraudulent activity and can therefore result in your application being rejected.

From simple contact details, proof of identification and employment, to details on your income and the property you wish to buy - it's likely you'll be in hot water if you don't provide the correct information they request in a timely manner.

To help ensure this doesn't happen, make a list of everything you need to include in the application and check it twice. It also pays to proofread your application more than once and maybe even ask your partner, parents or a friend to also cast their eyes over it for any mistakes.

5. Be in long term employment 

Just landed a new job a week ago and now looking to apply for a new home loan? It might be a smarter idea to wait before you fill out an application form.

Most lenders require that you've been in your current job for a minimum of 6-12 months (and pass your probationary period), or at least two years if you're self-employed before your loan is approved.

Why? It's because lenders must be certain borrowers have a reliable source of income. Even if a borrower has recently accepted a job role with a bigger paycheck, many lenders may push them back, opting for those with longer job tenure and associated stability that indicates reliability of income.

While there are plenty of things to be wary of when applying for a home loan, if you do your research and prepare, you'll be in your dream home before you know it.

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