You’d think by all of the media coverage on low interest rates and strengthening property markets that lending was equally as shiny at the moment.
Sure, it is much better than it was a year or two ago, when lending was restricted, mainly because of stringent policies instigated by APRA (Australian Prudential Regulatory Authority).
These have subsequently been eased in terms of implementation, but that doesn’t mean that securing finance has suddenly become a walk in the park on a warm summer’s day.
Quite the opposite, the regulators are still there but now more in the background monitoring lending practices, rather than at the forefront trying to grind our markets to a halt!
While there is no doubt that lenders are open for business and offering more attractive loan products, such as with higher loan to value ratios, they are still scrutinising living expenses.
And that is causing problems for some would-be borrowers.
Plus, some people aren’t doing themselves any favours by refusing to think outside of the square.
So, here are five reasons why you might not get a home loan.
1. Not understanding or knowing your living expenses
The days of lenders using a blanket living expense calculation are gone and I’m not sure they’ll come back.
However, at the moment, the balance is still a bit wonky with some lenders being overly picky about expenses.
A recent case in the media involved a couple who were told they had to choose between IVF treatments and a $600,000 mortgage, which is clearly unethical and completely inappropriate.
Lenders are checking bank statements with a fine-tooth comb and are highlighting anything they consider untoward such as one withdrawal at a casino potentially being a supposed sign of a gambling problem!
And lenders seem to assume guilt first and then have consumers try to prove otherwise, it’s really weird but that’s the current system.
Many people also have no idea what they spend every month and are surprised when they learn their real figures.
Our advice to clients is to create and stick to a budget at all times, and especially if you’re considering buying a home or investment in the next year.
2. Not disclosing all your debts
Some borrowers try to pull the money wool over a lender’s eyes by not disclosing all their debts.
For example, they may already have a number of personal or home loans with different lenders, so they falsely believe they can hide them.
The fact of the matter is there is nothing wrong with having manageable debt with different lenders as long as you can easily service it.
What is a problem is when borrowers think they can outsmart lenders when they can’t – especially in the era of open banking.
What usually happens is that a big red flag is raised, because a lender will start to wonder what else you have been less than truthful about.
Of course, that is never a good scenario for a loan application.
It’s always best to be truthful about your financial position, because you may actually not be able to afford the loan you are seeking in the first place.
3. Not understanding your borrowing capacity
Some existing homeowners and investors have no idea what their interest rates are.
They naively assume that their new lender – if they have sought one out – will use whatever rates are on their books.
Nope. They will assess your borrowing capacity on whatever your current home loan rates are, plus 2.5 per cent, which will either make or break a deal.
So, if you haven’t assessed your loans for years, it is time to do so.
Most lenders with consider a rate reduction request from existing customers – but they will never offer it voluntarily for reasons which are pretty easy to understand.
4. Not considering alternatives
Most borrowers who go it alone, head straight to their existing lender for finance because they’ve always banked with them.
If they’re knocked back, they wrongly assume that every lender will have the same opinion.
Even with their current lender, they could consider other options, such as principal and interest repayments to secure finance.
However, the smartest ones always assess which lender is the best for them as well as their property plans to improve their chances of success.
5. Trying to do it all yourself
Which brings me to my final point: Did you know that 60 per cent of all mortgages are now originated by brokers?
Our market share has skyrocketed over the past two decades as more and more borrowers recognise that securing finance should be done with the help of experts.
Borrowers who have attempted to go it alone over the past few years are often the ones who have remained stuck on the sidelines.
However, by working with a professional mortgage broker we can seek out the lenders who are the best fit for you.
And we can advise you when it’s time to cool your heels, get your living expenses and personal debt in order, so don’t head down a path that won’t currently lead to success.
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