One of the most frustrating things that could happen to a homebuyer is getting your application for finance declined.
By this stage, you’ve already likely been to dozens of home opens, organised all your paperwork and potentially even put an offer in on a house. Falling over at the last hurdle is not only frustrating, but it can also feel like your dreams are over.
But they don’t have to be, and more importantly, there are a few things you can do to make sure your loan application doesn’t get declined.
The more you’re looking to borrow from a lender, the more risk it presents to them. If you want to borrow more than 95%, that can be a red flag for a lender.
Most banks like to see you come up with a 20% deposit, which means an 80% LVR (‘Loan to Value Ratio’). While this might not be possible, there are other options you can look at like a higher LVR and paying Lenders Mortgage Insurance.
If you do need to borrow with a higher LVR and only have a small deposit, you might want to look at a guarantor loan or even take advantage of a Government program such as the First Home Loan Deposit Scheme.
In a perfect world, when you apply for a loan, the lender would like to see that you’ve got a long-term stable job with a regular salary.
Unfortunately, things are not always this simple and these days, many people have very unique work situations. If you’re self-employed or haven’t been in your current job for at least six months, then lenders might not look favourably on your application.
Fortunately, there are lenders that understand your situation and therefore it is important that you work with a mortgage broker who can match your employment situation with the right lender.
If you’re unemployed, you’re going to have a very tough time getting finance of any kind. These days, even if you’re asset rich, you still need to be able to show how you intend to service the debt with ongoing and reliable income. If you receive government assistance and benefits, there are some lenders who will use this as income which can be used for repaying the home loan.
Having bad credit is often a red flag to a lender and it is not always one that is easy to overcome. If there is an error that has been made on your credit file, then that is something you can sort out. However, if you’ve been bankrupt in the past, you might need to work with a specialist lender.
Banks and lenders like to see that you’re able to manage money effectively. If your spending habits aren’t great, then that’s likely a sign that you might not be able to manage a mortgage. Putting together a few months where you keep your spending habits under control is important. But it’s also more important to not have a host of debts that need paying each month, such as car loans or personal loans. Lenders don’t look favourably on these types of costs as they are fixed costs, unlike your discretionary spending.
If you’re looking to buy a property that might be tricky to sell in the future, banks won’t like the look of it. That might mean a holiday home or even a rural block of land. Banks will always consider the worst-case scenario, and if they need to sell the property because you can’t make the payments, they want something that will be able to sell quickly and easily.
To avoid getting into a situation where you might get declined, it’s vital that you go and speak to a mortgage broker before you even start looking for properties. That way, they’ll be able to assess your personal situation and also give you some guidance around the types of properties you’re going to be able to afford.
*This information is general in nature and does not take into consideration your individual circumstances. Please contact us for further information.