March 31, 2010
Hot on the heels of Easter holidays, April is traditionally a prime time for potential property buyers to hop along to a number of inspections in the hunt for a suitable purchase. If this is your plan, are you well prepared for the new home loan market?
Be aware that sweeping changes to lending criteria over the past two years may cause many novice and experienced property buyers alike to get egg on their face with an unexpected loan rejection.
Australia's largest independently-owned mortgage broker, Mortgage Choice encourages potential borrowers to take onboard a few essential home loan preparation tips before making their way to the greener pastures offered by successful property investment.
Senior corporate affairs manager Kristy Sheppard said, “Property investment can lead to financial rewards if clever decisions are made upfront. Along with researching thoroughly to find a profitable property, good investment decisions come from a clear strategy, meticulous preparation, careful comparison of finance options and securing a home loan tailored to your needs.”
“Spending a good amount of time shopping around often leads to a bargain. The key is patience, understanding of short and long term requirements and knowing what is needed for loan approval.
“In becoming more risk-adverse, lenders have tightened their policies around who they will lend to and how much. To help determine what loan options are available to suit your individual circumstances, it's a valuable exercise to visit a reputable and educated mortgage broker with knowledge of the approval criteria for a wide range of loans and lenders.
“A broker helps borrowers compare lenders' interest rates, loan features, fees and service, and advises on the criteria needed to qualify for loan approval. Lenders have different benchmarks. Lender A may require a five percent deposit from genuine savings with six months evidence, while Lender B requires a 10 percent deposit.
“Regardless, having a larger deposit or more equity to contribute means you borrow less and are therefore more likely to be approved. A number of lenders have now capped their loan to value ratios at 90% of the purchase price for homebuyers and 80% for investors.
“Also be aware that reducing your other debt commitments will probably increase the amount you can borrow. For example, someone with credit card limits totalling $50k can borrow less than someone with a $5k limit, regardless of how much debt the credit card/s actually hold.
“Further, small blemishes in someone's credit history can reduce the likelihood of loan approval. A default on a car loan, credit card or even a mobile phone bill can leave a borrower loan-less. Similarly, each time you apply for credit, it may be recorded on your credit file, so it's important to investigate your history in this respect before you apply for a loan.
“An experienced and knowledgeable mortgage broker will also help determine if you have a strong likelihood of being pre-approved for a home loan before you apply. Why is this important? Having applied for loan pre-approval – which many people take out before property hunting - may also appear on your credit record.”
Mortgage Choice offers these further tips to help you gain loan approval:
- See if a family member can ‘gift' you funds to put towards the property purchase, to help build your deposit and perhaps allow you to avoid lenders mortgage insurance. Lenders will require a statutory declaration confirming the money need not be repaid.
- Be sure to have a solid employment record and don't expect overtime to be included if it is non-essential work (it may, but it is best not to expect so).
- To reduce the costs involved with purchasing property, consider sharing the commitment by buying with others you trust, eg. friends and family.
- Include on your loan application details of all your important assets eg. savings accounts, shares held, gifted funds.
- Again, be aware that there is a wide range of lenders out there. One lender may be much more likely to approve you for a loan than another. Do your research!
For further information or to arrange an interview, please contact:
(02) 8907 0472 or 0407 416 124