Applying for a home loan can be a trying and time consuming experience. But the last thing potential borrowers want to do is hurt their chances of getting approved by making easy mistakes.
Making multiple mortgage loan applications can have negative effects on your credit history, your credit score, and your chances of getting approved by one of the lenders.
Let’s take a look at how credit reporting agencies assess events in your credit history and how to market you as an ideal borrower.
Why multiple requests can hurt your credit report
There are two main credit bureaus in Australia: Experian and Equifax. These bureaus keep a register of all people over the age of 18 in terms of credit and activity and operate with a scoring system divided into five levels.
|Credit score levels||Experiential||Equifax|
|Excellent||800 – 1000||833 – 1200|
|Very good||700 – 799||726 – 832|
|Good||625 – 699||622 – 725|
|Fair||550 – 624||510 – 621|
|Bad / Below Average||0 – 549||0 – 509|
Source: Experian.com.au, Equifax.com.au.
Your credit history will include both positive and negative events, including:
- Money you borrow, including loans and credit cards
- Your repayment history
- Credit inquiries
- Default values
- Debt agreements
The filing of a mortgage application falls under the category of “credit applications”. If your plan is to make multiple requests to even out the chances of rejection in the hope that one will be approved, this can backfire.
Lenders will look at your credit history when you apply. If it shows multiple open credit applications at once, it shows a level of bad financial behavior for the lender. Simply put, lenders consider a person making multiple claims to be risky. It does not have a level of stability or creditworthiness indicating that you can repay a home loan.
Additionally, if your home loan application is rejected, it will be flagged on your credit report and could adversely affect your credit score. If multiple applications are rejected, it can have a serious impact on your credit history and limit your chances of being approved for any credit product.
Instead, potential borrowers should focus on one home loan application at a time and prioritize increasing their demands as much as possible to meet the lender’s eligibility criteria.
How to become an ideal borrower
Mortgage lenders face strict service requirements when deciding who to lend money to. This helps reduce the risk of a borrower getting too much debt and falling into arrears or defaulting on a loan.
This is why home loan applications have eligibility conditions that borrowers must meet in order to be approved, including:
- Being older than 18
- Be an Australian citizen or permanent resident
- Have a good to excellent credit history
- Be employed full time (Low-doc or alt-doc loans may be available for self-employed workers)
- Achieve annual minimum income
- Have a large deposit
- Have “real savings”
Knowing this, it is possible to increase your chances of obtaining a home loan by presenting yourself as an ideal borrower. This can be done by becoming the best possible outcome of each eligibility condition.
Being an ideal borrower can look like:
- Increase your credit score to sit in the excellent category.
- Be employed full time for at least 12 months, which increases the stability of your finances.
- Increase your income to sit well above the minimum income for a loan.
- Have a spouse or family member co-signing or guarantor of the loan to further support your request and increase the income going towards the loan.
- Save a deposit of at least 20 percent. Not only will this showcase a high level of financial responsibility, but it will also save you from paying mortgage insurance from the lender.