Are you considering applying for your first home loan? It can be a nerve-racking time looking over your finances, worrying about your credit rating and considering whether you can actually afford the monthly repayments. It’s a big commitment but if you understand the lending criteria you can put your mind at ease and come prepared when you sit down to apply for a home loan.
What is the home loan lending criteria?
Lending criteria are the conditions put in place by your financial institution which specify whether you are eligible to apply for a home loan.
The lending criteria will be different for each financial institution and will depend on a number of factors such as the economic market, the size of the institution and what products they offer.
Here are some common lending criteria that lenders will consider when reviewing your application:
- A minimum deposit amount required based on the loan-to-value ratio (LVR) of the loan. The LVR is what percentage of the purchase price of the property you can borrow and how much deposit is required.
- Savings history or previous repayment history for a certain amount of time.
- How much you earn and if you work full-time or not.
If you meet the lending criteria, your lender will then calculate how much you can to borrow. It is then up to you to work out how much you can comfortably afford to borrow and make in repayments. Don’t overstretch yourself and make sure you factor in interest rate rises.
To give you an idea of what your home loan repayments may look like, use the RateCity mortgage repayment calculator. If you want to shop around for a competitive Australian home loan get started with the home loan comparison tool that compares thousands of home loans in one place.