We all know the banks have tightened their lending thanks to regulator restrictions.
But did you know about half new residential mortgage applications are now being rejected by these lenders who are concerned about borrowers meeting the tougher terms?
Mortgage brokers also say that the vast majority of loan pre-approvals are having that amount reduced when the loan is finalised.
Loan pre-approval is a lender’s estimate of what they can loan a prospective borrower based on their financial position.
According to Simon Pressley from buyers’ agent Propertyology, it’s got so tough in some instances some brokers are telling clients not to even bother applying for a home loan with a major bank.
“Some mortgage brokers are telling their borrowers not to waste their time applying for a loan with a major bank,” he told Australian Financial Review.
“It’s just too hard.”
“More and more brokers are recommending regulation-light non-bank lenders.”
Mortgage brokers are going through their clients’ financial histories more thoroughly and credit agencies are then matching the information with the clients’ financial history, existing loans, payment history and defaults, late payments or bankruptcies.
Brokers say most borrowers are falling down by not understanding or inaccurately entering details about their living expenses.
So how do you put the odds in your favour when trying to get your home loan approved? Here are some key points to tick off…
Check your credit files
Lenders will check your credit cards. They will also check your home, personal or car loans. Loan applicants are eligible for one free credit report a year from Illion, Experian and Equifax.
Pay your bills on time
Pretty obvious one this, no one wants to loan money to someone who has a history of being behind in their bill payments.
Record credit transactions
It’s a good idea to keep a comprehensive record of credit transactions and verified records of three months of rental payments. Include details of overtime, bonuses and commissions.
Check the property value and location
Run down smaller properties in high rise blocks or units in remote locations are ticking all the wrong boxes for being approved for a loan.
Beware of buying off the plan
Pre-approvals for an off the plan property may be declined by lenders if the property market takes a turn for the worse as it has done so recently in Melbourne and Sydney, or your personal circumstances change such as unemployment or illness.
Be wary of auctions
Getting a loan for a home auction is getting harder because the property is being bought without formal lender approval because before the auction no one knows the agreed price and there’s usually no valuation. Mortgage brokers say the best thing to do is to have a big deposit of at least 20 per cent to get your loan approval over the line.