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  • 8 steps to get your finances in order

    8 steps to get your finances in order

    Preparation is key to helping you achieve a successful home loan application. Here are 8 ways to help you be better prepared, which may place you in a stronger borrowing position when it comes to applying for a home loan.

    1. Know your business 

    It’s important to know your key financial figures, including your current income, net profit, expenditure and future projections. If you’re not confident answering these questions, it’s a good idea to speak to your accountant who can help you answer them.

    2. Check your credit file history 

    Run a credit file report on your personal and business credit file history. If there have been issues in the past, it’s a good idea to check your credit file and try and rectify the situation prior to applying for a home loan. Sometimes your credit file may have errors such as defaults, court writs or judgments listed by mistake. It’s also a good time to check for other things that may affect your rating such as frequent changes of address, overdue accounts and too many credit applications.

    3. Work out your Loan to Value Ratio (LVR) 

    The LVR is your loan amount shown as a percentage of the market value of the property you want to buy. The percentage that lenders are willing to accept will vary. You can decrease your LVR by reducing your loan amount or by having a bigger deposit.

    4. Keep track of cash flow 

    Lenders will look at your personal and business cash flow to analyse your ability to make loan repayments.

    Here are some ways in which you can improve cash flow: 

    • Chase up as many outstanding payments as you can.
    • Review your expenses. Figure out where you can reduce your costs.
    • Look at your current debt and see if you can combine it in a low interest and low fee product so you’re paying less interest. 

    5. Establish a personal budget 

    Think about what you are currently spending your money on so you can work out how much you can afford to pay each month towards a home loan. For example: 

    • Basic essential living costs – food, transport and school fees
    • Current debt commitments – other loan and credit card repayments
    • Lifestyle – leisure and entertainment
    • Other – such as eating out, childcare and costs such as investment properties 

    6. Work out your deposit 

    Your chances of buying a home will improve if you have a decent deposit.

    To avoid paying Lender’s Mortgage Insurance (LMI) you should aim to save at least 20% of your property value. You will also need to have additional funds to cover transaction costs and establishment costs.

    7. Understand your tax returns 

    To confirm your income and qualify for a self-employed home loan, many lenders will often require two years’ Personal Income Tax Returns and two years’ Business Income Tax Returns. An Australian Tax Office (ATO) lodgement reference number may be required to accompany Business Activity Statements. Having your tax returns up-to-date will help speed up the loan application process. If you are unable to provide this documentation, some lenders may accept a signed Borrower Certificate of Income Declaration Form from your accountant.

    8. Collate supporting documentation 

    It’s good to get together some of the supporting documentation you may need prior to your appointment to support your loan application.

    Business Activity Statements (BAS) 

    One type of appropriate documentation is 12 months’ of BAS. These are a way for businesses (and borrowers) to report their GST and PAYG withholding tax obligations and are often used by lenders to assess a customer’s borrowing capacity.

    Borrower Certificate of Income Declaration 

    This is a form stating your personal details and net business income less expenses per annum before tax. It is then signed by your accountant who declares, that based on their knowledge, it is not an unreasonable estimate of your annual income less expenses (before tax) and is in line with previous financial years’ income levels.

    If you can supply full financial statements  

    If you are able to supply additional financial documentation to the above, the lender may be able to offer you a standard home loan with a higher LVR. Your home loan expert can explain what additional information you may need to supply.

     

    About the author

    • Raymond

      Raymond A Ram is the RAMbassador for RAMS Financial Group. Raymond works with the RAMS team to bring simple, helpful and expert information on home loans and savings accounts to life with his down to earth and cheeky personality. He enjoys seeing everyday Australians turn their dreams of saving for a goal or getting into a home a reality. 

      Growing up in Goulburn, NSW, Raymond was brought up with good old-fashioned Aussie values of hard work and a fair go. It soon became apparent that Raymond wasn't content for the conventional path of grazing, producing the very best wool, and finding a nice sheep to settle down with. So it wasn't long before his passion for performing and his talent as a likeable larrikin shone through - landing him a few roles such as 'RAMlet'. He was even tipped to play RAM-bo at one point but chose to become star of the small screen instead as RAMbassador for RAMS. He now finds this role so much more rewarding.

      Contact your local RAMS Home Loan Centre about your home loan options.

      Raymond A Ram
     

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  • Disclaimer:

    The information here is of a general nature only and is not intended to constitute financial or tax advice. You should consult your professional adviser, accountant or taxation expert for advice specific to your personal circumstances.