If you are planning to get a home loan, you may already be aware that lenders closely scrutinise your ability to repay a loan. What may surprise you are some of the considerations they make these days.
If you have an existing loan with a friend, spouse or sibling, and you want to take out another loan in your own name, most lenders will assess your loan application based on your ability to repay the full amount of the existing loan – not just the half that you’re paying back! This occurs with those particular lenders regardless of whether you already have an agreement with the co-borrower to repay only a portion of that existing loan.
Most lenders require borrowers to have a deposit comprised of genuine savings. Typically, ‘genuine savings’ is money that has been saved over a period of at least three successive months, and in some cases up to six months. For most lenders, this excludes things like tax refunds, monetary gifts, the First Home Owner Grant, the sale of personal assets (like cars or jewellery) and lump sum annual leave payouts. Some lenders will consider some of these items when assessing your deposit, if you can provide evidence of your rental payment history, for example.
If you have less than 30 years remaining in your ‘working life’, it may impact your borrowing capacity and the loan term. If your expected retirement age is within 30 years, you will have to be able to demonstrate an 'exit strategy' – that is, how you will pay out the outstanding debt when you retire. An exit strategy may incorporate superannuation, other investments or plans to downsize an existing property. If you have less than 30 years' working life ahead of you and need a loan, keep in mind that in some instances your monthly repayments could be higher and your borrowing capacity may be reduced.
Some borrowers are in a position where they have a family member who is willing to guarantee a home loan by using their own property as security. In the past, some lenders allowed the guarantor to make up any shortfall in the loan applicant’s income and/or deposit. These days, borrowers must be able to service the full loan amount without assistance from the guarantor. Lenders have tightened up their borrowing criteria in response to the global financial crisis.
Let’s move on to the everyday lending criteria that lenders use when they are assessing your ability to repay a home loan. Your LVR (or ‘loan-to-value ratio) will be looked at closely. LVR is basically the amount you are borrowing, represented as a percentage of the value of the property being used as security for the loan. Generally, the higher the LVR, the less attractive the loan is to a lender. Lenders also want to see evidence of a solid financial track record, a steady employment history, stability of residence, as well as verifiable evidence of your income, assets and liabilities.
For more information contact Richard Windeyer on 1800 01 LOAN or click here to "Book a Meeting"