How to Improve Your Chances of Mortgage Approval

How to Improve Your Chances of Mortgage Approval

Applying for a mortgage can be both exciting and nerve-wracking, especially in Australia’s competitive property market. Whether you're a first-time homebuyer or an experienced investor, securing mortgage approval is often the first step toward achieving your property goals. However, with lending criteria becoming more stringent, it’s important to take steps to improve your chances of being approved for a loan.

In this article, we’ll cover key factors that influence your mortgage approval and how you can strengthen your application to secure the financing you need.

How to Improve Your Chances of Mortgage Approval

1. Boost Your Credit Score

One of the most important factors lenders consider is your credit score. A higher credit score signals to lenders that you’re a responsible borrower, which can significantly improve your chances of getting approved for a mortgage.

Tips for improving your credit score:

• Pay bills on time: Late or missed payments can have a negative impact on your score.
• Reduce existing debt: Lenders assess your debt-to-income ratio, so reducing your outstanding debt can work in your favor.
• Limit credit applications: Each application for credit (credit cards, loans, etc.) generates an inquiry on your credit file, which can lower your score.

You can check your credit score for free with credit reporting agencies like Equifax or Experian. If you find any discrepancies, make sure to dispute them to keep your record clean.

2. Save for a Larger Deposit

A bigger deposit can increase your chances of approval and help you secure a more favourable interest rate. In Australia, the standard deposit is 20% of the property’s value, but many lenders offer loans with deposits as low as 5-10%.

However, a larger deposit:

• Reduces Lenders Mortgage Insurance (LMI): If your deposit is less than 20%, you’ll likely need to pay LMI, which protects the lender if you default on the loan. Saving a larger deposit can help you avoid this additional cost.
• Shows financial discipline: Lenders view larger deposits as an indicator of financial responsibility, which can work in your favor during the approval process.

3. Get Your Financial Documents in Order

Having your financial paperwork ready and accurate is essential when applying for a mortgage. Lenders require detailed documentation to assess your ability to repay the loan.

Here’s a checklist of common documents you’ll need:

• Proof of income: Recent payslips, employment contracts, and tax returns (usually for the past two years).
• Bank statements: These should show your savings, expenses, and transaction history for at least three months.
• Debts and liabilities: Documentation of any existing debts (credit cards, personal loans, etc.).
• Identification: A valid ID, such as a driver’s license or passport.

Ensuring that these documents are accurate, complete, and readily available will speed up the approval process and reduce the risk of delays.

4. Reduce Your Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes towards paying debt. A high DTI can be a red flag for lenders, as it suggests you may struggle to meet additional financial obligations, like a mortgage.

To lower your DTI:

• Pay off high-interest debt: Focus on clearing credit card balances or personal loans.
• Consolidate debt: If possible, consolidate multiple debts into one with a lower interest rate.
• Limit new debt: Avoid taking on new loans or credit during the mortgage application process.

Ideally, lenders prefer a DTI ratio of 30% or lower, so focus on managing your existing debts before applying for a mortgage.

5. Ensure Stable Employment

Lenders are more likely to approve mortgage applications from borrowers with stable, long-term employment. If possible, avoid making significant career changes while you’re in the process of applying for a mortgage.

If you're self-employed, be prepared to provide additional documentation to demonstrate consistent income, such as tax returns, profit and loss statements, and business activity statements (BAS). Lenders will look for at least one or two years of stable income from self-employment.

6. Get Pre-Approval First

Getting pre-approval for a mortgage is a smart move before you start house hunting. Mortgage pre-approval gives you an idea of how much a lender is willing to lend you, and it shows sellers that you're a serious buyer.

Steve Keramidas our qualified mortgage broker can help you navigate the pre-approval process by:

• Assessing your financial situation.
• Comparing loan products from different lenders.
• Helping you gather the required documents.

Pre-approval doesn’t guarantee final approval, but it certainly boosts your chances by showing that you meet the lender’s criteria.

7. Work with a Mortgage Broker

One of the best ways to improve your chances of mortgage approval is by working with a professional mortgage broker. Brokers have access to a wide range of lenders and loan products, and they can help you find a loan that suits your financial situation.

A mortgage broker can also assist with:

• Identifying lenders with flexible approval criteria: Some lenders may be more lenient with applicants who have unique financial situations.
• Submitting your application: Ensuring all documents are in order and reducing the risk of errors that could lead to delays or rejection.
• Negotiating better rates: Brokers can often negotiate competitive interest rates on your behalf, saving you money in the long run.

At Mortgage Compare Plus, we specialize in helping clients find the best mortgage options available. Our experienced brokers will guide you through the entire process, from initial consultation to settlement, ensuring you have the best chance of approval.

Securing mortgage approval doesn’t have to be daunting. By taking proactive steps like improving your credit score, saving for a larger deposit, and working with a qualified mortgage broker, you can significantly improve your chances of getting the green light from lenders. If you're ready to start your home loan journey or want expert advice, reach out to Mortgage Compare Plus today for personalised assistance.

Disclaimer: This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.