7 tips for home loan applicants
Welcome to 2017. The summer break is done and dusted and for many, this year will herald the purchase of a new home or investment property and a new loan to make it possible. So to make the borrowing process go as smoothly as possible, here are seven simple tips:
1. Establish your borrowing capacity
Even if you have done this before, go through the exercise again as the rules that lenders use are constantly changing.
Specifically, there is now more focus on living expenses and changes to the way that lenders will assess any loans you already have. There are many calculators online to do this, but my advice is to speak with a mortgage professional – they will know the pitfalls and tricks of current lending practices. At Switzer Home Loans, this is something we do on a daily basis with no charge or obligation.
2. Organise your deposit
Lenders need you to have some skin in the game when you borrow to purchase a residential property. In other words, they need you to have some cash to contribute to the purchase or equity in another property that can be used to support your application. They prefer to lend no more than 80% of the value of the property (or properties) that you are providing to secure the loan. This percentage is called the ‘LVR’ or loan to valuation ratio. It’s a real benchmark figure as any amount over that will attract Lenders Mortgage Insurance (LMI) and probably a higher rate of interest.
Please be aware that you must also cover additional costs such as Stamp Duty. These costs may be as much as 5% of the purchase price, meaning you may need as much as 25% of the purchase price to get your LVR down to 80% to access the best deals.
3. Check your credit report
Lenders will check your credit history. If you are concerned you may have any adverse listings or comments, get a copy of your report. Visit sites like Veda to obtain a copy and review it carefully. If you have any adverse listings on the report, be upfront with the lender, it may save you a great deal of hassle.
4. Prepare your paperwork
You will be required to provide evidence to verify the figures you provide. This will include items such as loan statements, pay slips, tax returns, savings statements and purchase contracts. Do your homework before the interview and ask your lender what they require. It will make the process considerably quicker and a positive outcome more likely, not to mention it will save you plenty of stress and hassle.
5. Use finance and property professionals
These include accountants, buyer’s advocates, financial planners, quantity surveyors, builders etc. Yes, they do cost you extra but they should deliver you savings and advice that may save you their fee many times over. You will get better deals, less risk, less stress and less heartache if you use an expert so don’t be afraid to pay for good advice.
6. Get a pre-approval.
This looks back at tips 1 and 2. By processing your application first and getting an approval, you will establish your borrowing parameters. That will make the process of finding your property much easier as you will know what you can borrow and, by extension, how much you can spend on a property. It will also give you the whip hand in negotiations with the property owner and agent.
7. Understand your options
A home loan isn’t just a home loan. There are many different options such as repayment types, how the loan is accessed, what rates and fees are applicable and what other features are provided such as redraw and offset. Not all options are suitable for everyone and given the size of the investment you are making, small mistakes can have big repercussions, so know your options.
It’s not easy and it’s not straight forward, so don’t be afraid to use a mortgage professional to help you and ask as many questions as you can. Using the right professional will not only save you time and money, but you will get a structure to suit your individual needs and circumstances. If you’re still not sure, contact the team at Switzer Home Loans on 1300 664 339 for some free advice.