How first home buyers can gain home loan approval

For first home buyers, saving up a property deposit is arguably the most difficult process of getting a foot on the property ladder. But all that hard work may not pay off if you’re making any of these common financial mistakes.

After you’ve saved up a sizable nest-egg, you need to find a home loan lender willing to approve your mortgage application. If you’re currently in the process of saving for your first home, you may be curious as to the process of home loan approval. But did you know there are steps you may want to take at least three months before you apply?

Let’s explore a few key factors you may want to consider to boost your chances of home loan approval.

Pre-approval and full approval

Firstly, it’s worth being aware that there is more than one type of home loan approval. If you’re a first home buyer, you may potentially begin with seeking out home loan pre-approval before you sign on the dotted line.

Pre-approval (also known as conditional approval or approval in principle) is when a home loan lender gives you an estimate of how much they may lend to you for you to purchase property. You can then use this figure as a benchmark for the maximum value of a property you may apply for or bid for at the auction.

Pre-approval is not compulsory when taking out a home loan, but it may make purchasing property a little easier if you’re a first home buyer. It gives you more ammunition when touring properties, as real estate agents and sellers see you as more ‘serious’ about purchasing than others at an open house or auction. Pre-approval is not full home loan approval however, and is subject to expire generally after 3 months, or if your financial situation changes.

If you seek out pre-approval first, once you’ve found your ideal property you will need to notify the lender and they will take further steps in assessing your application, credit history and financial situation to see if you and the property qualify for mortgage approval.

Home loan eligibility is key

Whether you’re seeing pre-approval or full approval, a home loan lender will need you to meet its eligibility criteria first.

For most lenders, eligibility criteria typically includes the following:

  • Applicant is above the age of 18
  • Applicant is an Australian citizen or permanent resident
  • Applicant is steadily employed (Lenders favour full-time employment for a minimum of 3-6 months)
  • Applicant meets the minimum income requirement
  • Applicant has a good to excellent credit score

Keep in mind that self-employed applicants may still gain mortgage approval, but instead may want to speak to our Mortgage Team for more specialist assistance.

Being approved for a home loan is all about risk levels. By meeting the home loan lender’s eligibility criteria, you lower the level of risk that you may default on the home loan. Familiarise yourself with a home loan lender’s eligibility criteria before you begin your application to reduce your chances of having your application rejected.

Common mortgage application mistakes of first home buyers

Here are some of the most common mistakes that first home buyers may make that could hurt their chances of home loan approval – and how to fix them.

Making multiple applications

Some first home buyers may make multiple loan applications to “hedge their bets” that at least one lender may approve them for a home loan. However, this may have the opposite effect.

Any credit product applications you make will show up on your credit report. Lenders look for stability in your finances and will generally see multiple applications made at once as ‘risky’ and unstable behaviour. This means that multiple loan applications may mean multiple loan rejections, and any application rejections will further hurt your credit score.

Stick to making one application with one lender, then waiting for a response. If your application is rejected, consider waiting and working to improve your personal financial situation or credit score before applying again.

Not paying off your debts

Any outstanding debts will be a black mark on your loan application, and may reduce the amount you may be approved to borrow. This includes anything from maxed-out credit cards to a HECS/HELP debt.

Consider paying off your outstanding debts before you apply to potentially increase your chances of home loan approval by reducing your debt-to-income ratio. Further, by reducing your ongoing expenses, you may be approved to borrow a greater amount for your mortgage.

Not cutting out frivolous spending

Home loan lenders will divide your spending patterns into certain categories, like income and expenses – including entertainment – to determine your borrowing power. To do this, lenders will go through your bank statements with a fine-tooth comb. They will look for purchases, such as regular UberEats or Afterpay payments, and may factor this into your regular ‘entertainment’ spending.

They may then subtract this amount from how much you may be able to borrow, as they can assume you will continue to spend this much for the duration of your loan.

Before you apply for a home loan, try to cut down on ‘frivolous’ spending as much as possible for at least three months before applying for a mortgage. Keep your budget lean and, if you want to treat yourself, consider using cash in the lead up to your application.

Applying during work probation

Home loan lenders look for stability in your finances, which includes your employment history. If you’ve recently started a new role, keep in mind that your probation period is an uncertain time in which your new employer may let you go with minimum notice.

Even if you’ve significantly increased your income, you may want to consider holding off on applying for a home loan until you’ve passed probation. Being employed for at least 3-6 months may help to increase your chances of approval.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.