4 tips to fast-track your home loan application
Are you looking at applying for a home loan, but feel overwhelmed at the barrage of articles and commentary available on how to do it? The good news is lenders will generally consider four main factors when assessing your application. While the list of variables within those four categories could go on forever, we’ve provided some easy-to-follow tips to help you secure a quick and easy approval.
1. Show your capacity to repay the loan
Lenders are legally obliged to prove you can afford the loan they are providing. They must demonstrate that your income is sufficient to meet your existing expenses and payments, and cover the payments for the loan you are seeking. Therefore, they will ask for information about your income and your expenses and will require documents to support the figures they use.
Let’s deal with these separately.
a. Expenses. These include your day-to-day costs like food, rent, utilities etc. So, if you have a monthly budget prepared, that will give you a great head start. Lenders will also want to see statements for any existing loans or debts to confirm balances, interest rates and repayments. Be prepared and have a copy of your home or investment loan statements for the last six months, and credit card and personal loan statements for the last three. You will also be asked about extraordinary expenses such as childcare, additional health costs, education fees, etc. If they are in your budget, problem solved.
b. Income. Every application is different. You may have a regular PAYG position, rely on superannuation, run your own business, have rental properties, or rely on a number of different income sources. Regardless of where the income comes from, you will need to supply documents to support it. If you are a PAYG employee, take along your last two payslips, and your latest payment summary. If you are self-employed, take your last two years’ business and personal tax returns, or if you rely on rental income, bring along rent receipts or lease documents. If in doubt, ask your lender what they need when you make your appointment.
2. Prepare your equity statements
Your loan will be secured by a mortgage over either a residential investment property or your owner-occupied property, or both. Lenders have differing policies on the maximum they will lend you against the value of the security offered. This is called the loan to valuation ratio or LVR. This ratio will generally range between 70 to 95% of the security value.
You will therefore need either equity in your existing property, or savings, to secure the loan. To help the lender determine the LVR of your application, bring along bank statements to show your savings, a rates notice for your existing property, or both. If you are using your existing property, carefully consider the value of that property and provide a realistic estimate. It is very easy to take a positive view of the value of your property and this can ruin your plans when a valuation of the property is obtained.
3. Provide your credit history
Your credit history will be reviewed to determine if you are likely to meet your commitments, or if you have a track record of poor debt repayment. This is done by analysing your current loan and credit card statements and/or by reviewing your credit report.
The report will list what applications you have made for credit, and if you have defaulted on any of those facilities. If you think (or know) you have adverse listings on the report, or your loan payments have not been made on time, come prepared with an explanation.
To show your repayment history on your current loans and cards, take your statements to the appointment.
Funders will also look at your age, income, assets and liabilities to get a handle on your ability to manage your finances. They look at all of these factors to assess if your assets reflect your age and income. It is not the end of the world if you do not have a great list of assets, but lenders will always have a close look at these to get a feel for your spending habits.
4. Have a clear picture of your needs and objectives
Under credit legislation, a lender must not provide a loan that is unsuitable, or puts you under financial pressure. The loan they offer must also meets your needs and objectives.
For example, lenders are required to justify why they recommend or provide an Interest Only loan, or a fixed rate loan. So when you discuss your application with a broker or bank, have a clear picture of your requirements, your plans, and the various features you may find useful for your loan, e.g. redraw, offset, split portions, etc.
The trick to a quick and easy loan approval is preparation. Consider how you can satisfy the four pressure points listed above, and get the documents the lender will need to address them. Now more than ever, lenders require documentation to support their work, so the more you can provide, the easier the process will be. If in doubt, talk with your banker, broker or the team at Switzer Home Loans and ask them what they’ll need from you. It really can be a simple process!
Adrian Sheahan is the manager of lending operations at Switzer Home Loans. Contact him today for a free loan health check.