What do the banks really look at when you’re getting a mortgage?
So, you want to get a mortgage! Maybe you’ve found the house of your dreams, you want to expand your property portfolio, you’re over renting, or you just want to investigate exactly how far away you are from taking that first step onto the property ladder…and want to know what you need to get you there?
I totally get that it can feel pretty daunting, or even scary to start the process of getting a mortgage, as it feels pretty vulnerable to let the banks all up in your business with a fine-toothed comb. A lot of people dread the idea of them judging you and potentially disqualifying you for that Wednesday night Uber Eats transaction, or the time you got a little too jolly in the Boxing Day sales. The truth is, it’s nowhere near as scary as it seems, and ultimately, once you know what you’re working with, the better informed you are to make any changes that can get you where you need to be.
So, here’s a clear, no-BS breakdown of what banks really look at when assessing you for a mortgage. It’s more than just how much you earn and how much you spend - it’s a holistic view of how risky or reliable you appear as a borrower.
Here’s what we’re working with:
Your Income
The banks want to ensure that your income is consistent (that you have money coming in regularly and that it’s from a stable source), that you can verify it’s source and that it’s enough to cover your mortgage, as well as your other regular living costs.
If you’re self-employed, you’ll need at least two years of financial statements, and that banks will probably be a bit more conversative when assessing you - you can read more about getting a mortgage when you’re self-employed here.
Your Employment
The bank will be interested to know if you’ve been in your job 6-12 months or more, that you have a consistent pay rate and that you haven’t changed industries recently, or often.
Your Expenses
This part can feel a little bit scary for a lot of people (it’s not just you, don’t worry!), but the bank understands you have costs, and they’ve seen it all before - they’re just doing their best to understand if you’re in the position to potentially service a mortgage.
They’ll want to know what your day to day living costs are (like food, petrol, utilities etc), what existing debt you have (including things like Afterpay!), what your credit card limits are, as well as subscriptions, school fees, and all your other everyday costs.
They will likely ask for three months worth of bank statements to get a good overview of your spending.
Your Deposit
Of course, the banks will be interested in how much you’re able to bring to the table; including how much you’re able to contribute upfront and where it has come from.
It might be possible to secure a mortgage with a deposit lower than 20%, but you can read more about what that might involve here.
Your Credit History
The bank wants to know how trustworthy you are to ensure they can safely lend to you, so they’ll want a snapshot of whether you pay your bills on time, if you are prone to late payments or if you have defaulted on loans before.
Showing how responsible you are here means you’ll be viewed as low risk for missing a mortgage payment, and that’s what the bank likes to see!
Your Debt-to-Income Ratio
With all the information now to hand, the bank will be able to get an understanding of how much debt you have compared to how much income you have to ensure you’re not stretching beyond what you’re capable of servicing.
Your Character
With all of the above information, the banks will be able to get a clear picture of who you are when it comes to money. Whether you’re unpredictable with spending, or if you’re strict with your budgets; if you slip into overdraft often, or if you never miss a bill. This will give them a holistic view that will assist them to make a decision on your lending.
The Property
The banks will also consider the property you’re hoping to buy; whether they think it is worth the price, if it will hold its value, and whether they will easily be able to recoup their costs on the property if anything goes wrong.
Ultimately, the banks want to make a smart decision when they lend to you - so yes, the savvier you are at budgeting and saving and the less spending slip ups you have the better!
Working with a mortgage advisor helps you to put your best foot forward to the banks, and allows you to have someone else cast an eye over your situation, and guide you to make improvements where necessary before you go all the way through the process.
If you’d like a no pressure chat to ease into the mortgage journey, drop me a line and we can see how close you are to being ready to take that next step, together!
