Home loans and credit cards

[jpp42]

I am just starting the path towards first time home ownership, and was very surprised to see that online finance calculators seem to assign a penalty of about $50k of borrowing power for every $10k of credit limit. I have never carried a balance on my cards and my monthly spend is only regular expenses, nothing beyond my means. Is there no way to prove/explain that to a home loan assessor? Do they really assign the whole credit limit as a loan/liability, rather than using average daily balance or something like that?

Currently I hold a Bankwest Platinum Zero (for international usage/spare), American Express Ultimate (primary for most expenses), and at St. George Platinum (churner). I will cancel the latter once I get the signing bonus, but it looks like I need to cancel the other two as well and move to debit cards in the interim? I think they are already on the lowest credit limit. Does it really take as much as 12 months before the bank will no longer consider these, even if I provide proof the accounts are closed? It would suck not to have any points earning cards for this amount of time, not to mention the delay in getting my home loan.

 

[Lynda2475]

They do only seem to consider the credit limit and not the fact that you pay it off in full every month - which has always struck me as crazy if like me you have never ever paid so much as 1c in credit card interest they should consider that.

Most people reduce down to one card whilst applying for a home loan. There are debit card options you can use for overseas travel in the interim.

That said most packages that include an offset account will often give you a free credit card and it can be a points earning one (i.e. my QF earning MC is free with my loan from WBC).

 

[piratematerial]

Is there no way to prove/explain that to a home loan assessor? Do they really assign the whole credit limit as a loan/liability, rather than using average daily balance or something like that?

Generally best to get your credit card limits down to a minimum before applying for home loans. The reduction in loan amount is based on paying off the minimum payment of a maxed out limit. However, some loan assessors will see churning as a positive, as it shows you understand how the system works.

Does it really take as much as 12 months before the bank will no longer consider these, even if I provide proof the accounts are closed?

Not at all. Some banks will ask for proof a card is closed as a condition of the loan.

 

[Dr Ralph]

It's a very competitive market for home loans. In the past I've explained churning to the loan assessor and told them that I'm happy to go elsewhere if they had a problem with it.

It always comes down to your income and ability to repay.

 

[jpp42]

Thanks all for the advice.

 

[albyd]

Also, Charge cards can be your friend - they're either considered to have a $10K limit or not considered at all as you need to pay them off each month - depends on the lender IME.