DITCHING the credit cards, paying your bills on time and shopping around for lenders are among tips from experts on how to secure a home loan.
Amid the credit crunch, mortgages are harder to get than at any time in the past 20 years, experts say.
Faced with a collapse in home lending approvals, would-be borrowers need to get their financial affairs in order before approaching banks, they say.
Despite the plummeting house prices and imminent interest rate cuts, experts predict getting a mortgage will not get easier -- with banks toughening their lending criteria.
Steven Anderson, head of research at ratings agency InfoChoice, said potential borrowers needed to take time and care over their mortgage applications.
"This is the first time in a while that the banks haven't been falling over themselves to lend to you,'' he said.
His view is shared by Phil Naylor, CEO of the Mortgage & Finance Association of Australia.
"I think lenders are getting more stringent,'' he said. "They haven't changed their policies, but they are dotting the Is and crossing the Ts.''
To help would-be borrowers, the major banks and financial experts have listed the most common reasons why people are turned down for mortgages.
The bank doesn't think you can service the debt
Mr Anderson said banks were conservative when it came to estimating how much debt people could service.
"If they won't give you the loan, you should seriously consider a smaller property,'' he said.
One way to look better is to consolidate any debts.
"Get rid of unnecessary debt -- if you've got credit cards and you don't use them, get rid of them,'' Mr Anderson said. "The banks don't look at how much you owe, but at how big the credit limits are.''
Kelvin Lawrence, Westpac's general manager of mortgage portfolios, said banks looked hard at people's savings history.
"Having a history of genuine savings stands a borrower in very good stead with the institutions,'' he said.
He said if a bank was unhappy with an applicant's savings history, they could work with a customer to put a savings plan in place.
Steven Shaw, NAB's general manager of mortgages and consumer insurance, said it was sometimes possible to get around the savings requirements if a family member was prepared to guarantee the loan.
The term of the loan is greater than the time until you retire
According to Mr Anderson, this is the easiest financing problem to get around.
"All they do is change the terms of the mortgage,'' he said.
"So instead of paying the loan off in 25 years they give you a shorter period, so you pay it off quicker.''
You have had debt defaults or a bankruptcy
Mr Anderson said most banks overlooked small defaults on bills.
"If it's only minor it probably won't matter,'' he said.
Mr Lawrence said the number of defaults was also important.
"We look at one versus multiple defaults,'' he said.
"We are looking for a trend.''
Mr Anderson said that in the past there were more lenders prepared to provide low-doc or no-doc loans, but those options had shrunk.
"There are still specialist lenders who will lend to people with bad credit histories, but you will be charged a much higher interest rate,'' he said.
"Really, the only option is to get someone to go guarantor.''
Security is not acceptable
This means the bank does not accept the valuation of the property and refuses to lend the money.
Mr Anderson said while it was possible to get your own valuation and appeal against a rejection, there was little chance of the bank accepting it if the difference was too big.
Mr Naylor said being turned down was not the end of the world.
"The bottom line is if one lender doesn't want to lend to you -- shop around,'' he said.
"That's why mortgage brokers are a good idea -- hopefully they can find a lender that meets your requirements.''
