How to get the bank to say yes to your loan application
Applying for a home loan it can be a time consuming process, made all the more stressful if you’re thinking: I don’t know where to buy investment propertynin the first place, let alone whether I can afford it?!
It takes due diligence and plenty of research to help you decide exactly where to buy investment property. But when it comes to figuring out how to buy an investment property, locking down your finance approval is key.
There are a number of things you can do as an applicant in order to increase what banks refer to as your ‘credit worthiness’.
Property investment strategist Andrew Crossley, author of Property Finance Made Simple and Property Investing Made Simple, says you need to be “finance ready” before you apply.
“Make sure bills are paid on time to avoid surprises on your credit file,” Andrew says. “Reduce your credit card limits if possible; this will increase your borrowing capacity. You will also need evidence of ‘funds to complete’.”
Andrew also believes it’s important to understand the Five Cs of Lending.
“The fundamental elements of what a lender assesses when deciding on every application and every applicant are what is called the Five Cs of Lending,” Andrew says.
“Lenders want to see a track record of repayments on debts to demonstrate the applicant has been responsible,” he says. “Genuine savings are good, because it means you have proven you can save money.”
This relates to the property — what the valuation says, zoning, density, postcode, etc. “Having assets is another strength in a deal when applying for a mortgage. Whether it’s cars, furniture, other belongings that have a value attributed to them – and naturally property, shares, superannuation, and cash – they all count to paint a picture.”
If bills or repayments are not paid on time, this may be considered a blemish on someone’s character. Avoid shopping around for the best rate, or applying for more than 2-3 credit cards/personal loans. “If you have too many enquiries on your CRAA (credit report) you have a greater likelihood of failing credit scoring,” he advises.
“Policy governs how a deal is assessed. This is the more tangible method of assessing a loan and its credit worthiness,” Andrew says. “This is less about the borrower and more about the purpose of the loan, the type of loan, the loan amount, etc. There are parameters for lending based on location, debt against equity, loan amount, and purpose.”
What a person earns in their job, and their tenure in the role, have an impact on your application’s success. A person must be able to service the debt they require, in conjunction with any other debts they already have.
“This is another reason why a broker is better than a bank,” Andrew says.
“A good broker is one who knows which calculators are better, and which lenders are more forgiving.”