Buying a Home - What do Banks & Lenders Consider?
There are a number of factors a lender will consider when you ask for a home loan.
Knowing what they are looking for can increase your chances of being approved.
To qualify for any home loan you must have a deposit. Many lenders will consider borrowers with a 5 per cent deposit (generally 10 per cent for investment properties).
However, it is important to recognize that this is the minimum and is only offered to clients considered to be a very safe prospect.
In addition you will need to have saved an amount to cover other costs involved in purchasing a property and taking out a loan, such as lender's mortgage insurance, government stamp duties and conveyancing fees.
For your loan application to go ahead, the mortgage insurer will also have to approve the application and be willing to provide the lender with insurance. Lender's mortgage insurance companies require a minimum of six months of "financials", that is, bank statements, pay slips or any other proof of income documents.
With most mainstream lenders, you also need to be able to show a pattern of genuine saving. Often described as "hurt money", it is often required to be at least 5 per cent of the value of the property. This has to be money you (and your partner) have earned and saved, not a gift or other financial windfall.
Applicants with a higher disposable income are more likely to have their home loan application approved. The maximum loan repayment is often set as a percentage of your income.
The type of property, its location and its condition will all be evaluated when assessing your loan application. Comparable sales in the area are also investigated.
Lenders also consider your employment history. Temporary, probational positions or a volatile work history are not generally well regarded and may affect the outcome of your loan application.
The lender will also conduct a credit reference check with a credit bureau such as Baycorp Advantage. Your credit history is a record, within up to the last seven years, of any defaults, substantially late payments, seriously overdue or outstanding debts, records of inquiries and bankruptcy.
This can often be a major determining factor in the success of a home loan application as lenders can flatly reject an application based on a poor credit history.
To find out where you stand, talk to me at Mrs. Mortgage.
Top Five Mortgage Tips
People put so much emotional and physical effort into finding the right property that it's easy to neglect the importance of finding the right mortgage.
It is not just about choosing the loan with the rates and repayment options that suit, it is also about being aware of other "accessories" and obligations that go with it.
You don't want to encounter any nasty surprises, so the Mortgage and Finance Association of Australia (MFAA) has put together the top five tips for borrowers.
1. Shop around for the most suitable deal. The lowest rate doesn't necessarily mean the best mortgage. If you don't want to do all the shopping around yourself, you can use the services of a mortgage broker. Mortgage brokers assist you in looking for the best overall loan for your current situation from a panel of different lenders.
To ensure you have a level of consumer protection, make sure the broker you are dealing with is an Accredited Mortgage Consultant (AMC) with the MFAA. AMCs have satisfied certain educational and professional entry levels and have access to the Credit Industrty Ombudsman Scheme (COSL).
2. Read the mortgage contract carefully. Before you sign up for a home loan you should always read and understand the credit contract from the lender. This contract by law must outline the terms and conditions of the loan in plain English. Seek independent legal and financial advice when you are entering into any contract, especially one of this magnitude. Remember, once you have signed their credit contract you are bound by the lender's terms and conditions.
3. Borrower's obligations.As the borrower, you have ongoing obligations to your lender after the mortgage has been approved. The most important issue is that you need to make all repayments either on or by the due date. Put the due dates in your diary or arrange for your bank to automatically deduct the amount each month to avoid any problems.
4. Be comfortable with your repayments at any time.It is great to get the home you always wanted but be realistic about where you are at in your life.
Draw up a regular budget and where possible, allow for any planned changes to your circumstances such as paying for a wedding, stopping work to have a baby, starting a business.
5. Have the mortgage, but thinking of refinancing. There are many merits to refinancing into a new loan or with a new lender but first make sure you are aware of all the cost associated with refinancing.
Refinancing is not free. Costs associated with refinancing may include: break costs if you have a fixed interest rate, early repayment fees, deferred establishment fees, along with government and mortgage discharge fees, plus new loan application fees, stamp duty, mortgage registration fees and mortgage insurance costs.
By taking time to think before jumping into anything, your journey to home ownership can be a pleasant one.