When applying for a home loan to buy your first home it is both an exciting and nerve-wracking time. Many first timers have a secret fear that their credit rating may not be completely up to scratch, especially if they recall the days when maxing out their credit card and paying their rent a few days late.

But did you know there could be a much more innocent mistake you could be making that lenders don’t approve of?

That mistake is applying for too many home loans in a short space of time.

Why do multiple applications concern lenders?

While lenders can access information that shows them how many loans you have applied for, they don’s have access to information that tells them why the applications did not progress to an approval.

That means that if you are shopping around for the best loan from various lending institutions in order to decide on the best loan for you, it can appear as though you have been declined on numerous occasions.

The key is to do your research and make home loan comparisons before you apply for a loan. This is especially true if you are a first homebuyer borrowing more than 80% of your property’s value and are therefore relying on Lenders Mortgage Insurance (LMI).

Why?

Mortgage insurers conduct their credit score calculations to assess the risk of their customers defaulting on a loan in the same way as lenders do. If a mortgage insurer declines your request for LMI, it won’t matter how favourably your chosen lender looks toward your application; it won’t be approved. This means you could have to wait at least six months before applying again. Alternatively, you may have to accept a loan product with much higher interest and charges.

What about pre-approvals?

Unfortunately on many credit files, there is no differentiation between pre-approved and approved credit. Although it may seem unfair, that means a pre-approval is regarded as a credit enquiry even if it hasn’t yet converted to a full application.

How do you shop for the best loan then?

The best way to avoid this issue is to go through a mortgage broker who will do the shopping around for you.

Last but not least …

A new record is added to your file every time you apply for credit. And every credit enquiry you make remains on your file for 5 years from the lodgement date.