How to Organise Your Finances Before Applying for a Home Loan

Applying for a mortgage can feel like one of the most daunting stages of your path to homeownership – but don’t stress. We’ve got you covered with a handy guide to get you feeling zen about what needs to happen before you go knock, knock, knocking on lenders’ doors.

When you apply for a home loan, lenders will look at your finances – mostly how much you spend, how much you save, and what ‘liabilities’ you have – and decide how much they’ll let you borrow. The good news is, there are plenty of ways to sweeten up your finances and give yourself the best chance of being approved.

Here’s how.

Remember, any advice provided on this website is of a general nature only and does not take into account your personal needs, objectives and financial circumstances. You should consider whether it is appropriate for your situation.

The main game: steady saving

Lenders can be a nosey bunch. When you apply for a home loan, they’ll take a peek at your bank statements to understand where your money goes. Then they’ll establish how much you can afford to repay based on what they see.

Don’t worry, they actually aren’t going through item by item to judge you for a Friday night pinot.

What they will be looking for is evidence that on balance, you seem able to keep enough aside every month to comfortably cover potential repayments.

Different lenders will want to see different spans of time on your statements. As a general guide, spring clean your spending habits for a good 3-6 months before you apply, to give yourself the best chance of success. (And strengthen those savings muscles! Win win).

Reconsider Buy Now Pay Later

Delayed gratification is back on trend. Unfortunately, lenders just don’t tend to be the biggest fans of BNPL, even if you’re making all your repayments on time. Buy Now Pay Later is credit: money you owe. Evidence of BNPL programs on your bank statements could compromise your borrowing power.

So consider paying off what you owe now, then stepping back from the platforms to give yourself the best chance of approval.

Pause before you punt

We don’t mean to sound like your mum, but consider skipping your footy punt for a while when you’re applying for a home loan. A little once-a-year flutter is one thing: looking like you might put the house savings on the line is really another. So regular transactions with gambling apps or bookkeepers could cost you some borrowing power.

Review credit limits and repayments

The way lenders assess your liabilities can be a little confusing. We’ve broken down some common repayments and explained how they could impact your application.

Student loans

Plot twist: your student loan balance might not be the barrier to homeownership you expected it to be. Yeehaw! But hold up. Before you pop the bubbly and start dreaming of your perfect island kitchen, check how much you’re paying in student loan repayments. Those bad boys are what could hold you back on your path to first homeownership.

Lenders will assess your ability to repay a loan based on the repayments you’re making each month. HECS and HELP repayments are means tested. The more you earn, the more you pay back. If you’re earning big money, you could be carrying a hefty repayment to boot. (Hopefully you’re also able to save a bunch too).

Don’t panic, it’s not a dealbreaker. But, if you’ve only got a small balance left on your loan, consider paying it off to eliminate that monthly expense and free up more borrowing capacity.

Credit cards

Consider yourself a cruisy credit card user who pays off their balance on time every month, no questions asked? It might not impress your lender quite as much as you’d think.

While your savvy use of credit is something to celebrate (seriously, go you), it’s actually your credit limits that banks are interested in. If you’re rocking around town with a $10,000 limit on your credit card, lenders may assess that limit as a liability. In theory you could max out that card tomorrow and be liable for the repayments. In their eyes, limit equals liability.

For this reason, consider closing your credit cards or reducing the limits available before you apply for that loan.

Car loans

You’re a smart cookie – we think you’re getting the idea. It’s not necessarily the balance of your car loan you need to worry about, but the regular repayments.

High monthly repayments on a car loan could reduce your borrowing power. If you’re close to the end of a loan term on a vehicle, consider applying for your home loan once that expense is a thing of the past.

Stash those savings

We’ve yapped a fair bit about all the things lenders don’t like – they’re a fussy bunch, what can we say? But there is one thing they really, really like, and that’s something called ‘genuine savings’.

Proof that you can squirrel away a pretty penny with as much dedication as you’d give your houseplants. They like cold hard digits... like crystal clear transfers from your transaction account into a Saver. And they want to see it happening on the regular.

This is particularly important if you’ve had help with your deposit. Whether you got a gift from the bank of Mum and Dad, inherited a sweet chunk of change from a rich distant relative (the dream), or found a suitcase of cash on the street (bit sketchy) – proof of genuine savings is likely to help your application. Focus on making regular transfers to your savings account for a period of at least 3 months prior to applying for a home loan.

Go forth and get those finances mortgage-ready, Upsider. We believe in you!