Biggest home loan myths busted

It can be tricky enough to get a home loan, without getting distracted by the wrong advice and misinformation. With rate cuts looming this is what you should be doing.

It can be tricky enough to get a home loan, without getting distracted by the wrong advice and misinformation. With rate cuts looming this is what you should be doing.

If you run your own business, have gone on maternity leave or are simply getting a few grey hairs, you may have heard from friends or family that you won’t be able to get a home loan. As it turns out, they were wrong.

Here are some of the biggest home loan myths – busted.

MYTH 1: BANKS DON’T LEND TO PEOPLE OVER 50

Banks are governed by responsible lending practices, says First Choice Mortgage Brokers director Tony Bice, which means they need to be assured that the person they are lending to is able to pay back the loan.

This becomes more complex if the borrower is set to be in their 80s at the end of the loan term – but it doesn’t necessarily rule out all borrowers over the age of 50.

“Banks will look at giving a client a loan regardless of how old they are over the other side of 50 provided there is a satisfactory exit strategy,” Bice says. “The first thing I do is look at their super. The second thing I look at is whether or not they have any other property.”

If, on the other hand, the borrower has no means to show they can reduce the amount of debt, the only other option for an older borrower is to reduce the loan term, he says.

You’re never too old to get a home loan.

MYTH 2: YOU CAN’T GET A LOAN ON MATERNITY LEAVE

Another common misconception is that it’s impossible to get a home loan while on maternity or paternity leave, says Atelier Wealth Mortgage Brokers founder Aaron Christie-David.

“Not true at all,” he says. “You can certainly get it as long as you have a return to work date.”

Policies around the length of time before returning to work do vary between banks.

He also says it’s important to have clarity around any plans to upsize your family and home given the impact an extra dependent has on a person’s borrowing capacity.

MYTH 3: YOU CAN’T GET A LOAN AS A SELF-EMPLOYED PERSON

On the contrary, says Bice, self-employed people probably make up about 50 per cent of the loans his firm writes each month.

He says there are lenders who offer low doc or alt doc loan products whereby the person’s accountant can be used to verify income.

“We form a relationship with the client first and then speak with their accountant,” he says. “The tax returns generally wouldn’t have been done for the last year because they are generally done nine months later at the cut off, so we replace their verifiable tax returns with a low doc authority from their accountant.”

One thing to keep in mind, however, is that alt doc loans tend to come with a higher interest rate than full doc home loans.

Founder of Atelier Wealth Mortgage Brokers Aaron Christie-David. Picture: supplied. NSW real estate

MYTH 4: A POOR CREDIT SCORE MEANS NO LOAN

While some banks don’t do business with borrowers who have a poor credit score, there are other lenders that are willing to play ball as long as you can offer a reasonable explanation, says Christie-David.

“If there has been an issue, they just want to know what happened,” he says.

Bice says most subprime lenders price their loan products according to risk, which means you will likely be paying a higher interest rate than a standard home loan.

HOME LOAN FACTS

With so many home loan myths floating around, it’s helpful to get the facts straight before visiting a broker or bank for the first time. Mortgage broker Aaron Christie-David from Atelier Wealth shares some useful intel below.

You can get a home loan with some banks during your probationary period as long as you are a permanent PAYG employee.

You can get a home loan on maternity or paternity leave if you have a return to work date

Credit cards impact your borrowing capacity significantly – the higher the limit, the worse it is impacted.

There is no age limit on lending as long as you can show the bank you have an exit strategy

Borrowing capacity can vary as much as 20-30 per cent across lenders.

Originally published as Biggest home loan myths busted