Homes To Love
More tips to get the loan you want. Another extract from my new book Property Finance Made Simple
Published in Homes to Love.
Author : Andrew Crossley
When applying for a loan it can be a time consuming process but there is a simple way to go about it. There are a number of things you can consider in order to increase your preparedness, awareness and credit worthiness.
The first thing to do is try to be finance ready, make sure bills are paid on time to avoid surprises on the applicant’s credit file. Reduce credit card limits if possible; this will increase borrowing capacity. Have documents ready. These often include; 2 forms of ID, 6 months mortgage statements for a refinance or loan increase, or if a purchase, the purchase contract will be required. Evidence of ‘funds to complete’ if a purchase, a clear understanding of assets and liabilities to avoid leaving any off and being accused of non-disclosure, and an exit strategy if over 55.
It is always wiser to never be a guarantor for anyone; it is incredibly risky. Never purchase a property with someone else except a spouse; lenders can attribute 100 per cent of the debt and only a percentage of rental income, inline with what each person on title is responsible for/entitled to.
The fundamental elements of what a lender assesses when deciding on every application and every applicant are what is called the The Five Cs of Lending:
Lenders want to see a track record of repayments on debts to demonstrate the applicant has been responsible. It’s indeterminable whether a person has the inclination to repay the debt if they have no debts. Deals, where someone has 5 per cent of genuine savings are good, because they have proven they can save money. Borrowers with no ‘hurt money’ in the deal are higher risk.
Having assets is another strength in a deal when applying for a mortgage. Whether it’s cars, furniture, other belongings that have a value attributed to them and naturally; property, shares, superannuation, and cash, they all count to paint a picture. The older the applicant is, the more assets the lenders would like to see. They don’t like it when they see a sixty-year-old person renting with friends, with no assets.
If bills or repayments are not paid on time is considered a blemish on someone’s character potentially.
Avoid shopping around for the best rate, nor apply for short-term loans, or more than 2-3 credit cards/ personal loans, and if these people have too many enquiries on their CRAA (credit report) they have a greater likelihood of failing credit scoring.
Policy governs how a deal is assessed. This is the more tangible method of assessing a loan and its credit worthiness. This is less about the borrower and more about the purpose of the loan, type of loan, loan amount, etc. There are parameters for lending based on location, debt against equity, loan amount, and purpose.
What a person earns in their job, and tenure in the role have an impact. A person must be able to service the debt they require, in conjunction with any other debts they already have.
This why a broker is often better than a bank. A good broker is one who knows which calculators are better, and which lenders are more forgiving.
Ultimately there are three things, which can assist, in a greater likelihood of finance being approved. A good credit rating, cash or equity available, and enough income to service current commitments as well as the new loan being applied for.
ABOUT THE AUTHOR
Andrew Crossley is a property investment strategist and founder of Australian Property Advisory Group. He is also the author of the #1 best-selling books Property Finance Made Simple and Property Investing Made Simple (Busybird Publishing, $24.95 each). For more information visit www.australianpropertyadvisorygroup.com.au or contact firstname.lastname@example.org.