One of my friends gave me detailed tips about how to prepare ourselves and I will share these below.
The biggest tip is that I had to prepare us financially before we could even apply for a home loan. If you prepare several months in advance, you will ultimately save time and make loan approval more likely.
This is because the best scenario is that you get approval for a home loan the first time you apply! If you apply several times and get knocked back because you were not ready, not prepared properly, then that puts a black mark against your name and makes it harder to apply the next time.
Saving for a deposit is important but it is really only the very first step. As you check off a step, you just methodically plod along to the next step:
SAVING DEPOSIT
1. Able to pay regular bills and still put aside 'something' (no matter how big or small) into your savings account most weeks and mostly leave it there without dipping straight back in :)
CREDIT HISTORY
2. The first thing for financial preparation that you should look at is your Credit History, or Credit Rating. This is one of the first things the bank will look at to see your 'Credit Reliability' when considering whether to give you a loan or not.
You are allowed to request a copy of your own file and it is good to do this, to see what the bank will potentially see. You can request a free copy of your personal 'Credit Report'. I got my credit report from VEDA [http://www.mycreditfile.com.au/home/free-credit-file.dot], I put in a request and provided the requested personal identification. I waited approx. 1 week and then got email notification with my password protected file for download.
This is a pretty big step in preparing yourself and I will go into it in detail because it was not really explained to me and I had to figure out what it all meant, once I got my actual Credit Report.
This credit history is held by a central agency a 'National Credit Reporting Agency', there are 3 of these in Australia [http://www.oaic.gov.au/privacy/privacy-topics/credit-and-finance/how-do-i-get-a-copy-of-my-credit-report]. Companies can submit your personal credit data to these agencies and other companies and individuals can access it upon request. I think the data is kept on your file for 5 years.
This credit data can be a notation about any loan you may have applied for from a Commercial Credit Companies in the past 5 years. Each application is noted, regardless of whether they were successfully finalised and paid out to you, or not. This means that even if you did not proceed with, or were refused a particular loan, it will be noted against your name as your 'credit history'.
Companies can also lodge negative data about your credit history on this file, if you did not pay a particular bill on time (credit default), they can send that information to be added to your credit history file. Other public record information like Bankruptcies and Court Orders are also kept on this file.
Your personal credit file can be deceptive because it is simply a list of financial information about potential credits against your name. It does not show positive information about your repayment history. It can potentially paint a grim and somewhat false picture of your current financial situation.
Some examples:
- You are considering taking out a personal loan for whatever reason and you put in several online applications, to several different financial institutions, just for information about whether you may be successful or not but you do not follow through, you do not get the cash from the bank. Every one of those applications are listed on your credit file, it does not record any data about whether the money was paid out, or not. So, someone looking at that credit history information may think that you were potentially approved for every application and you actually have 10 personal loans, even though you don't have any!!
- The above example is also true for applications for a home loan. This is why you want to be financially prepared before putting in ANY applications because if you are refused because you are not ready, it may make it harder to be successful again once you are ready.
- You have a credit default listed against your name because you did not pay a bill. You have since repaid the bill to the original financial company and no longer owe any money. The credit history file will still show that credit default and will not record that you repaid it. It will stay on your file for 5 years.
- Another oddity is that if you have not applied for any loans or had any financial data lodged against you personally, you will have no credit file. This should be good right? Not necessarily because you do not exist when the bank looks and this could also potentially mean you are a credit risk because you have not been approved for credit previously..... LOL catch 22!
Do not worry if any of the above is on your credit file because if you know what the bank will see, you will be able to prepare in advance for any potential questions.
If you have repaid a bill for example and it is still listed on your credit report, you can contact the company who listed your default in the first place. You can ask them to remove your credit default listing but even if they refuse, they should be able to provide a letter that states that you have repaid the default bill in total. That letter etc. could be submitted to the bank with your home loan application.
It is important to keep your credit history clean in the lead up to a home loan application.
When you are finally ready to apply for a home loan but you get knocked back the first time because your deposit is not big enough, or something like that but everything else is fine. You should wait another few months (maybe even 6 months) and keep plodding on saving more and increasing the deposit you have accumulated. Then apply again and even though you already have a large loan listed on your credit history, you can explain why (especially if you re-apply to the same bank) and they will likely accept it. However, if you went crazy and made 6 different applications after the first one was refused and still got knocked back for the same reason, it will be a lot harder when you try to reapply 6months later. You will look desperate for one and they will also not know if you did get approval..... Worst case senario is that you have to wait several years before you can try again for another home loan, even though you are actually in a great financial position!!!!
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