Getting a home loan requires more than just a good job and a decent down payment. Lenders also take a close look at your spending habits to assess your financial health and mortgage affordability to repay the loan. While responsible money management is a surefire way to get approved, even common spending habits can raise red flags for lenders, potentially making your mortgage loan applications fall short of lender’s requirements.
Here is the breakdown of some unsuspecting financial behaviours that could jeopardize your mortgage application:
Vague PayPal Transactions:
While PayPal is a convenient online payment method, lenders may scrutinize transactions with unclear descriptions. Frequent purchases with vague descriptions, especially those associated with online gambling or other high-risk activities, can raise red flags.
Buy Now, Pay Later (BNPL) Services:
These services may seem like a harmless way to spread out payments, but they can negatively impact your credit score in two ways. First, applications for BNPL services can be recorded as enquiries on your credit report, lowering your score. Second, missed BNPL payments are reported to credit bureaus, further damaging your creditworthiness.
Additionally, the Australian Prudential Regulation Authority (APRA) now includes BNPL debts in debt-to-income (DTI) ratios. A high DTI can significantly reduce your borrowing power or lead to loan rejection.
Frequent Dipping into Savings:
Having a healthy emergency fund demonstrates to lenders your ability to handle unexpected expenses. While occasional withdrawals are understandable, frequently draining your savings can cast doubt on your budgeting skills and ability to make consistent mortgage repayments, potentially making your application fall short of lender requirements for responsible financial management.
Multiple Store Credit Cards:
Retailers often use attractive rewards programs to entice customers to sign up for store credit cards. However, these cards often come with high-interest rates and can tempt you to overspend. Having a surplus of store credit cards can give lenders the impression you're reliant on multiple credit lines, a sign of potential financial strain. Furthermore, every application for a new line of credit, including store cards, can trigger a hard inquiry on your credit report, which can lower your score.
Frequent Large ATM Withdrawals:
While some people prefer using cash, frequent large ATM withdrawals can make your spending habits difficult for lenders to track. Unexplained cash outflows can raise concerns about your financial responsibility. If you rely on cash, be prepared to explain your spending habits to lenders with receipts or bank statements.
Taking Control of Your Mortgage Journey
A home loan is a significant financial commitment. By avoiding these sneaky spending habits and demonstrating responsible financial management, you'll increase your chances of loan approval, even if your situation might not perfectly align with traditional lender requirements.
The Loan Club can help you navigate the second mortgage and bridging loans process in Australia. We understand that every borrower has unique needs and circumstances. We work with our networking partners - mortgage brokers to assist you with the following:
Develop a budget and track your spending to meet serviceability requirements
Submit a loan application that meets lender's loan to value ratio (LVR) requirements
Explore alternative financing options to find the best mortgage solution for you, even if your application might fall short in some areas. This could include second mortgages for renovations, bridging loans for property transitions, or even helping you secure small loans online to address unexpected expenses and improve your overall financial picture before applying for a home loan.
Contact The Loan Club today to discuss your second mortgages or bridging loans with our experienced team in Australia. We'll help you find the best path to secure your finance.
Disclaimer: The information provided here is for general knowledge only and does not constitute financial advice. Please consult with a qualified professional before making any financial decisions.
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