A common mortgage mistake many Australians make

2023-05-24 09:49:24

Por Olivia Day para Daily Mail Australia
04:44 May 24, 2023, updated 06:27 May 24, 2023

• Tradie loses a home loan due to a joint deed
• The developer shares his best tips for getting approved

A developer revealed that Australians are denied a home loan because they spend on cars, and he shared some simple tips to help you get approved.

andres campbell, Specializing in homes and land for first-time homebuyersHe warned potential owners to think twice before spending on a new car.

Campbell said getting a $15,000 personal or car loan can reduce an applicant’s home loan capacity by $100,000.

He said a man in his 20s was bitterly disappointed after he applied for a home loan shortly after borrowing money to buy a new Ford Ranger pickup truck.

Campbell said the man’s ability to borrow decreased from $600,000 to $200,000 because he would have to make high-interest monthly payments on his new Ford Ranger, which is a depreciating asset.

The specialist told Daily Mail Australia that in the eyes of the bank, monthly payments of $1,200 to $1,300 would indicate that the applicant does not have enough cash to comfortably pay off the home loan, with interest rates still rising.

The other day I spoke with a young man who made $112,000 a year. A man, with no other commitments, Campbell explained in a Tik Tok Video earlier this week.

And I’m thinking, No problem, this guy could borrow about $600,000 for his first home. He then proceeded to tell me that he had just taken out a new loan of $80,000 to buy a Ford Ranger.

Andrew Campbell, a Perth-based home and land specialist, warned prospective owners to think twice before spending money on a new car.

So his borrowing capacity went from about $600,000 to $200,000 or maybe less.

If you’re thinking about buying a new car, shop around for your home first, because it’s so easy to go and get a new car loan later, once you’ve proven your home loan payment and feel comfortable. they.

Then you can determine what you can afford on the car loan.

Campbell said if first-time buyers buy a car before taking out a home loan, it can “significantly” reduce their borrowing capacity.

He said banks would consider all debt before approving a home loan, which in turn could reduce the number of homes available to an applicant.

“You might have some debt, but it will hinder your ability to borrow,” he said.

Campbell said people looking to get into the real estate market should make sure they don’t have any outstanding bills and have good credit.

It’s also good to remember when buying your first home that it’s not your forever home. Make sure it’s something you can afford, and don’t go overboard with flashy extras like floor-to-ceiling mosaic tiles or high ceilings.

Campbell (pictured with a client in April) said if first-time buyers buy a car before getting a home loan, it dramatically reduces their borrowing capacity.

A developer urged first-time buyers to get a home loan before buying a new car (pictured is the Ford Ranger, one of Australia’s best-selling SUVs)

What to do and what not to do to apply for a mortgage loan:

Do Make sure you have good credit

Do Make sure there are no outstanding invoices

Do Maintain a stable and secure income.

No Get a car or a personal loan

No Excessive use of property.

No Invest money in eye-catching additions to your new home

He encouraged first-time buyers to clean the slate by not overdrawing any of their bank accounts and maintaining a steady income.

Campbell said most of her clients were young Australians in their 20s and 30s who were eager to put rent behind them.

“They are paying high rent, so they might as well be paying a mortgage,” he said.

“It is a better financial decision to buy a house than to buy a car.”

If you are interested in purchasing your first home, Mr. Campbell recommends speaking with your local financial agent.

Why does getting a car loan affect my mortgage application?

1. Debt to income ratio: Lenders consider a debt-to-income (DTI) ratio, which compares your monthly debt payments to your monthly income. By getting a car loan, you increase your monthly debt obligations, which increases your DTI. Lenders generally have specific DTI limits that borrowers must meet to qualify for a mortgage. The higher DTI caused by your auto loan may limit the amount you can borrow for a home loan.

2. Monthly Payment Obligations: When you get a car loan, you agree to make monthly payments for a set period of time. These payments are included in your total financial obligations. When you apply for a home loan, lenders evaluate your ability to manage both your mortgage payments and your existing debt. Making a higher monthly payment on a car loan reduces the amount of money available to pay down the house, which can reduce your ability to borrow.

3. Use of credit: Another factor that affects your borrowing capacity is your credit utilization ratio. It measures how much credit you are using compared to the total credit you have available. When you get a car loan, it adds to your total debt, increasing your credit utilization ratio. Higher credit utilization can negatively affect your credit score and make lenders more careful when approving additional loans, such as a mortgage.

4. Risk assessment: Lenders assess the risks associated with lending you money. Borrowing more through auto financing can make it seem riskier to lenders. They may be more reluctant to offer additional credit, such as a home loan, if they realize you already have a significant amount of debt to manage.