One of the most frustrating things that could happen to a homebuyer is getting your application for finance declined.
By this stage, you must have 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!
In today’s article, Trusted Finance will show you a few things you can do to make sure your loan application doesn’t get declined:
#1. Borrowing Amount
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. While this might not be possible, there are other options you can look at like a higher LVR and paying LMI (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 taking advantage of a Government program such as the First Home Loan Deposit Scheme.
#2. Stable Employment
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 paycheck.
Unfortunately, things are not always that 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 us, to help you 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.
#3. Your credit History
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.
#4. Your spending Habits
This is one of the factors that might affect your borrowing capacity.
Banks and lenders like to see that you’re able to manage money effectively. If you’re 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 favorably on these types of costs as they are fixed costs, unlike your discretionary spending.
#5. You’re buying an “unusual” property
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.
#6. Get your Genuine Savings in place!
As mentioned in the previous post, in order to avoid last-minute rejections, you need at least 5% of your loan deposit to be “Genuine savings”. The reason is, most lenders will want to see that you have the ability to save money over long periods of time.
As you know, the economic, political and social situation always has a direct impact on lenders’ policies with more constraints to protect lenders’ benefits/ For example, during the COVID-19, some lenders will refuse your loan application if you’re working in restaurants, nail salons, or if you’re self-employed running a small-scaled business… Even though all requirements have been met, the application will still be rejected for unknown reasons. Therefore, before closing this article, here is the last key factor that Trusted Finance wants to emphasize, which is:
#6. Getting your Pre-Approved!
To avoid getting into a situation where you might get declined, it’s vital that you go and speak to one of our friendly Trusted Finance members before you even start looking for properties. That way, we would 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.
📲 Phone: 1300 24 68 68
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🔎 Website: www.trustedfinance.com.au
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