This article was originally published in 2016 and has been updated.
In a recent industry study around one in four respondents admitted their home loan application was not completely accurate; 14% said they overstated household income.
While it can be tempting to downplay our weight at a doctor’s appointment, or shave a few years off our age on a first date, when it comes to applying for a home loan honesty is the best policy.
Home loan lenders verify your income in a number of ways – by looking at pay slips, employment contracts and by reviewing recent bank statements. So it’s easy to get caught out.
More to the point, it is important you are able to comfortably manage your home loan. After all, there’s not much point owning your dream home if the repayments leave you thinly stretched financially. You still need to be able to lead an enjoyable lifestyle.
That’s why a better strategy is to make the income you have work harder. There are plenty of options available that don’t involve bending the truth. The key is to speak with your local Aussie Broker at an early stage. This helps you understand exactly how much you can afford to borrow on your current income. From here, there are a number of options worth exploring to make your income work harder.
Cut back personal debt
Even a high income can only stretch so far. If a large chunk of your regular salary or wage is used to pay existing debts like a car loan or personal loan, aiming to reduce the balance or pay the debts off altogether frees up more of your income for home loan repayments.
Reduce your credit card limit
Lenders don’t just look at how much you owe on a credit card; they’re also interested in the card limit as this represents the maximum debt you could end up with. Reducing your card’s credit limit can boost your borrowing power. Contact the card issuer to request a decrease to your credit limit before applying for a home loan. Get it in writing so you have evidence to hand over to lenders.
Embrace a budget
Regularly overdrawing your account is likely to hamper your home loan ambitions. Budgeting offers the benefit of control over your money, and that matters as it demonstrates you can manage the income you earn.
Pay bills on time…every time
No one will notice the occasional late bill, right? Wrong. Your lender will take a look at your credit record as part of your loan application. Bills that are outstanding or paid late can appear on your credit record, leaving a black mark against your name. The bottom line is pay bills on time, every time.
Consider joining forces
If your income is super tight, it can be worth taking on a co-buyer – a sibling, parent or like-minded friend, who can chip in with the monthly loan repayments, share household expenses like maintenance and insurance, in return for a stake in the property.
Think about a lower entry point
Home ownership is a worthwhile goal, though it pays to be realistic about where, and what type of property, you can afford to buy. Today’s income may not fund your dream home but your first home is an important step on the property ladder. As property values, and your income, rise over time you’ll be better placed to upgrade to a better home or location further down the track. Talk to your local Aussie Broker for more ideas on making the most of your income to achieve your property goals.