6 things to consider when applying for a loan
Even though property prices are dropping, it is getting more difficult to secure a mortgage. Given property valuations are lower, and the Royal Commission has scrutinised Lenders’ home loan application processes, prospective Aussie homeowners are reporting that it is taking months to get approval and that they don’t even know what is required for a successful application anymore.
So what is going on, and what are the top tips to help your clients navigate the tightened lending criteria and apply for a home loan in 2019?
PayPass under the microscope
We are seeing lenders decline loans and even scrutinising borrowers’ spending habits, going as granular as how many times you’ve purchased takeaway in a month. Lenders are now looking at up to 6 months worth of bank transactions and credit card statements, including every single ‘tap and go’ purchase made. It is a near forensic examination of spending habits. My tip - advise your clients to start living like they have a home loan now (i.e. eating in more often or not splashing on big-ticket items) to reduce the likelihood of the banks scrutinising their spending.
What’s your credit rating?
The information that can now be accessed on your client's credit rating is far more detailed and includes what type of credit accounts they have, their credit limit and whether they have been paying loans back on time. Did you know a $10,000 credit card limit can cost you up to 50K on their home loan application? Let your clients know to check their credit rating first, especially where they may have made late payments, and understand why. They can dispute anything that is incorrect.
Approval time blow-outs
It is taking banks longer to approve loans, much longer. Tell your clients to have all their documents in order to make the process faster for the banks, but I would also suggest having finance in order and approved before making an offer on a property. I can help them sort this out.
Lower borrowing capacity
Lower housing prices, tighter regulations and Royal Commission uncertainty have all contributed to lenders being much more cautious about how much your clients can borrow. If they don’t have their finances approved before they start looking for a property, it is worth speaking with a mortgage broker to get an understanding of the figure they may be eligible for.
What’s your exit strategy?
Lenders are looking more closely at a borrower’s exit strategy, which outlines how a client can continue to pay their home loan once they reach retirement age, without incurring hardship. This used to only happen when an applicant was over 50, but is now required when applicants are 37 or over. I’ll chat with your clients about what their exit strategy could be depending on their age and make sure they have a plan.
In 2017, APRA placed restrictions on the number of Interest Only loans lenders can distribute to customers, limiting lenders to just 30 per cent of all loans. This was in an attempt to encourage more first home buyers to the market and temper higher-risk lending. APRA has since reversed that for residential lending from the beginning of this year, but it is still not as easy as it once was to secure an interest-only loan.
I make it my job to be across all this stuff so I can keep you informed. Get in touch if you have questions.