As you have probably heard in the media the nations lenders have clamped down on their lending criteria as a result of pressure from various government agencies like APRA and ASIC and from recommendations made during the Banking Royal Commission into banking misconduct.
It would be fair to say that many lenders have perhaps taken this a little too far which has resulted in a market place full of inconsistent applications of an incomprehensible set of rules for borrowers to deal with.
As a result of this we felt that the following information can be used as bit of a guide to help maximise your chances of securing finance approval by implementing any number of the following tips.
1. Fill out your application form in full
Lenders will often apply a score to your loan application based on the information you supply and if you skip on optional questions this can be detrimental to the strength of your application if things a little tight. For example even if you have a savings account with another bank with a small amount in – tell your proposed lender. If you have a middle name don’t forget to include it – it matters. If you have moved a couple of times try and be accurate with your living history as lenders often marry up data they can see on your credit file with the information supplied in your application.
If you are looking to refinance or buy your next property check out client fact find here – this is a fantastic form which is responsive to asking you the questions we know a lender will want to know – nothing more and nothing less! We can contact you after you have completed to run some tailored options past you.
2. Don’t submit your application to too many lenders or brokers
Lenders get very concerned when they see on your credit file that you have applied to a number of credit providers within a short period of time for about the same amount of money. The lender in question will often take the pessimistic view and think that there is something wrong with your application and has been declined by other lenders prior to it so will pick over your file with more detail trying to find out why you would apply so many times.
3. Do you have credit defaults?
This might sound scary and a reason for a lender to decline a loan but many lenders have different policies that may consider your scenario depending on the circumstances and what you have done to remedy the situation. As a general rule of thumb defaults from utility providers like power and telecommunication companies have less impact on your scenario than do defaults on financial service providers like personal loans, credit cards and home loans.
It is important to realise that with the evolution of the positive credit reporting regime lenders can now increasingly see the conduct of other institutions credit facilities. So if you are late on your credit card payment with the CBA and your home loan application is with Macquarie Bank, then there is a good chance that they can see this on your credit file down to which months you were on time and those that were not!
Treat your repayment history with a healthy level of respect and you will find your application will run pretty smoothly. A good mortgage broker or banker will be able to work with you prior to submission to identify any sort of severity and work out the best course of action and the lenders most suited the scenario you have presented.
If in doubt you can get a free copy of your credit file from mycreditfile.com.au (a service from Equifax Pty Ltd). We can take a look at it for you free of charge and provide you with some insight – feel free to contact us here.
4. To Afterpay or not…
The advent of the ‘buy now and pay later with no interest’ companies like Afterpay and Zip Pay creates an interesting situation for lenders. In simple terms these are not seen as a great look on your bank statements because the lender makes the assumption that these often relatively low cost purchases were made because you did not have the money in the first place and with retailers quick to jump on the band wagon with this offering its even available on products and services that may be considered essential. Our recommendation is generally not to have these buy now pay later arrangements if you are seeking to make a mortgage or finance application.
5. Support Docs
You will of course have to supply items like payslips, ID, mortgage statements and tax returns etc depending on your situation. This often slows down the process when the information requested is not provided in a timely manner. Many lenders simply get to your file and if information is missing they request whats needed and place your file at the back of the queue again. Sometimes information supplied can result in additional questions being asked so be prepared for this to happen and its nothing unusual albeit it can be frustrating.
6. How much do you spend?
OK I get it that a budget is boring but again an increased focus is being made on just how much borrowers are spending on living expense and there is a general reduction on the reliance of HEM (Household Expenditure Measures) standards and a more tailored approach. Having a summary ready before your finance meeting will help you have a more productive and realistic expectation of your borrowing capacity for any sort of approval. There are often many ways that you can reduce and improve your living expense without making drastic changes in the months lading up to when you are looking at securing a mortgage. Go through your statements and look at where you may save money via;
- Reducing utility bills by shopping around suppliers
- Reducing or eliminating credit card debt
- Do your food shopping with a list and don’t buy by impulse
- Take a packed lunch (this $10 per day can save you $216 per month in after tax dollars!)
- Love coffee (so do we) but consider a pod machine or something similar over the 4.90 large flat white with almond milk once or twice a day
- Pay yourself first (savings) – putting money away first before you pay for everything else is a simple yet powerful process to help you get ahead. Think of every time you get a pay rise how easy it is spend that new amount of hard earned cash! There are some great online tools that can help with this. One that we love is Raize.com.au and ING Bank – these two companies have variations of a system that automatically squirrels away savings by rounding up your purchases to the nearest dollar and allows a regular savings plan. Simple, effective and above all – happens without effort. (note if you click the link above to Raize you receive a $5 credit to your new account as do AXTON Finance)
7. What happens if you are having or planning for a child
Lenders are now required to ask about any expected changes to your future income that may affect your ability to meet repayments. This of course is a requirement to be answered truthfully and is strengthened by your ability to provide other information about how you may deal with such a situation. For example if you are about to go on maternity or paternity leave you could state that you have a certain amount of funds available for the estimated period of you being on reduced income to meet the commitments of your loan. A return to work letter and using a lender with a strong appetite for this sort of scenario will also help you a lot.
8. How good is your mortgage broker or banker?
Of course we may be a little biased here but having an experience broker working with you will help explain things in plain English for you and be across the lending policies of dozens of lenders and not just one (like you would get directly at a bank).
The quality of your application submission that is made by your broker or banker can really dictate how smoothly your application goes. Do some simple research like looking up your preferred broker or banker online through Google, LinkedIn and the other usual social media links. Usually you will get a pretty quick impression as to how experienced and professional they are. If in doubt trust your instincts!
9. Consider the wider market
It is often that the more competitive products and policies lie outside the big four banks. Well over 50% of all mortgage lending goes to just four of the major banks. At AXTON finance, only 20% of our lending in the last six months has gone to a majors! There are better deals to be had if you are willing to look outside of the square it can save you tens of thousands over the life of your loan.
10. Is the cheapest rate the best?
A business mentor once told me of the following three things;
Good, fast and cheap…. pick two. It is impossible to have all three.
Wise words to live by indeed.
A quick search of the internet may list some amazing rates that look too good to be true and while it is still may be worthwhile considering you should also think about;
- How volatile is that rate online? Sometimes a great rate may be unsustainable for a lender to offer for a long term and you end up getting rate creep with increases outside of RBA changes. While you will be rather annoyed if this happens it would be good to understand what sort of history has been evident with the lender in question?
- Does the lender’s computer say NO?. In many instances lenders try and shoe horn customers into rigid processes with offshore credit decisioning driven by computer systems. If you fall outside of this sort of lenders policy due to any complexity then you want a human with experience going into bat for you. Paying an extra 0.1% or 0.2%pa in rate can often mean the difference between submitting to a lender who may view your application as being poor versus another one that is fine with your set of circumstances. Use a quality mortgage broker who understands the rules to maximise your outcomes and reduce your stress.
- Does the lender have a good application and onboarding process or is it a process with baked in systems that worked in 1991 when fax machines were cool? This can have a significant impact on turn around times – a good broker will have excellent experience of this fist hand and can guide you.
- Cheap online specials often blow out credit application queues resulting in turn around times that can take weeks (even months). Currently there is one lender that is out to almost 20 business days to pick up a file – do you have that sort of time to wait?
- Enquire about what sort of service the lender has with clients. A quick look up of reviews online can give you a feel about one lender over another. However read with caution as people often use the internet to complain and rarely to praise.
- Ensure that you understand the product that you are seeking really does have the features you need. There is no point paying for stuff you are unlikely going to benifit from if there is a cheaper and/or simpler product available that does what you need it to?
So there you have it – ten tips on helping get your mortgage application approved!
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