Going to a bank to secure finance for a home is rarely an easy process, from first home buyers to seasoned investors, many hurdles need to be cleared.
I always recommend that if you are considering securing finance, speak to an expert prior to ensure you put up the best application possible. Quite often you will only get one go at it and if you go through a loan application unprepared, and the loan is not approved in can harm your chances of getting a loan with a different institution as they will see the unsuccessful application on your credit file.
Right now, the big four banks want your business, they are discounting rates and offering some really good packages for the right people. The basic rule is that the more you want to borrow, the more the banks will offer you as an incentive. Not that long ago, banks could discount around 0.5% off their variable rate, now you can negotiate up to 0.8% which would bring your rate to below 7%.
That said, I have never seen a tougher time for people to get their loan application approved, at the beginning of January new legislation was introduced to protect mortgage holders from unscrupulous lenders and it seems that the banks have tightened their lending policy as a result of the new requirements.
While I support the intention of the governing bodies, some of the regulations are making things extremely difficult for a lot of hardworking Australians who would have had no problems obtaining finance prior to the end of last year.
So, as the rules have changed, I strongly urge you to form a relationship with a good mortgage broker or bank lending manager who is happy to spend the time with you to explain whether you could be negatively impacted by the new rules. And obviously if you are a first home buyer, obtaining a pre approval prior to looking at property is now a necessity.
The three most common reasons that I see people struggle to obtain finance are the following:
Poor conduct on existing loans and credit cards
Gone are the days of loan assessors being lenient to those who show that they are slack when it comes to paying their account on time. Most banks will insist on seeing the past six months history on all of your commitments, if you’ve missed a payment on a personal loan or gone over your limit on your credit card in that time you will struggle to get a mortgage. I’ve even seen banks delve back several years into the conduct of their existing customers to ensure they had good credit history. Set up auto payments on your accounts and always check your statements at the end of the month. It takes one minute to go over your credit card statement, don’t just throw your unopened statements on top of the fridge and forget about them.
If ever you go to a lender about obtaining finance, you can be sure that the lender will access your credit file. Many people are shocked when they realise that they cannot get a home loan because they forgot to pay a $200 phone bill three years ago, or they paid it late, it all comes out on your credit file.
A good mortgage broker can help you obtain this credit report if you are unsure of your history prior to the bank seeing it. Never leave a share house with bills still in your own name, and if you come out of a relationship always ensure that you notify Power and Water and your phone company and tell them to close the account, then follow it up. The bank will not care even if it’s found that these providers have listed a default against your name in error, they have zero tolerance these days. And for you people embarking on an extended trip around Australia or overseas, make sure you arrange reliable forwarding addresses etc.
Poor savings history
I get this one a lot, people tell me, it’s impossible to save a deposit when you are renting in Darwin or Alice Springs, well I’m sorry to have to tell you that if you can’t afford to save money while you rent you’ve got no chance of paying off a mortgage in the Northern Territory.
For example for a first home buyer, if you are paying $500 a week rent and can’t save on top of this consider what a mortgage will cost. Buy a home for $550,000 with a 5% deposit, by the time you cover your costs you’ll need to borrow approximately $525,000, at 7% this is around $880 a week, at 8% it’s around $970. If you haven’t been able to save money, where is the extra $400 to $500 a week going to come from? You really have to ask the question because I guarantee that’s what the bank will be asking.
All of these factors can be discussed and checked by a good mortgage broker or lender for you, make the time to ensure you are in the best possible position when purchasing real estate, and it will make life a lot easier and less stressful if you do it without the burden of a signed contract because you’ve made an offer on a property prior to speaking with a finance professional.
TIP! Check your credit score and credit history before you apply for finance, so you can be prepared and know what the lenders will see. There are a few places where you can access your credit information for free, including Aussie’s own free website, Credit Savvy.