A few years back, banks and non-bank lenders were keen to finance homeowners who can demonstrate a steady income each month to repay their home loans. Since the global financial crisis, financial institutions are a lot more vigilant these days and have tighten their lending criteria.
Based on my own experience, the following areas were key to getting a home loan approved for your home or investment property:
1. Develop a relationship with your chosen bank / lender / mortgage broker.
In the course of shopping for a home loan, try to talk to a few banks / financial institutions to get a feel for competitive mortgage rates and other pertinent terms and conditions of the loan. If you decide to use a mortgage broker, he will be able to advise you on the most appropriate package for your needs.
Finding a mortgage broker is a lot easier these days with the internet and healthy competition in the home loan market. I have found that developing a relationship with my bank manager or an agent which acts exclusively for a particular bank to be a useful partnership.
Over time and a few home loans, the manager / agent understands your needs, your financial background and your ability to service your home loans. By earning commission for the life of your home loan, the manager / agent is incentivised to take care of your needs so that you don’t go to a competitor.
2. Understand your financial capablities.
Be upfront and honest with the bank with regards to your financial capabilities. You obviously do not need to tell the bank “everything” but the point here is to make the bank feel comfortable that you are able to repay the home loan in a timely and consistent manner.
Therefore, it pays to do some initial homework, number-crunching and work out a reasonable monthly budget for your family which takes into account the home loan BEFORE seeing the bank.
I always think “help yourself by helping the bank”. You can do this by working out your monthly living expenses, existing debts eg. credit card and personal loans after deducting all your superannuation and tax to get a good feel for your disposable income.
This will provide a lot of clarity to both you and the bank as to the level of your affordability. Mortgage calculators will help you work out how much you can borrow according to your earning capabilities and existing financial obligations.
3. Prepare and organise all your documentation.
The documents required to process a home loan will vary according to different financiers. As a general guide, you will need documents to verify your identity such as birth certificate, driver’s license, passport, Medicare card and credit cards. Your financier would like to see your pay slips, tax returns, bank statements, letter from employer confirming salary, statements of asset & liabilities, title deeds, records of savings etc in order to process your loan.
Organising these documents effectively provides confidence to the bank manager that you have a good understanding and are in control of your own personal finances.
Good luck and happy loan hunting!