When choosing the right home loan, the old adage, “work smarter, not harder” resonates with more Australians who choose to have a mortgage broker do the leg work for them. For a painless home loan application process I consider how the lender will assess an application to get it right the first time.
When lenders assess an application, it comes down to evaluating the risk involved with repaying the loan. Here are some key measures lenders use to assess the risk of a client.
It’s not just about the figure but also the stability of income. This includes employment type (full time versus casual), how long a client has been with an employer and the industry they work in. If a client has just started a new job I’ll provide at least two years history to demonstrate income over a longer period.
Of course bigger is better when it comes to a home loan deposit but genuine savings are also meaningful. It’s important to show the client’s ability to save over time. Regular deposits into a savings account make a good case for being able to pay off a loan.
Lenders also want to see copies of credit card and personal loan statements to review repayment capability. They want to see bills paid on time and staying within credit card limits. Any previously billed council rates will also be considered and overdue notices will have a negative impact.
Lenders also score applicants on their existing credit facilities and how they use them. It’s a complex part of the process and most lenders now use an electronic system to rate someone’s risk. Understanding a client’s credit situation means I can make some recommendations and decide on the best course of action. For example, a client with a low credit score will likely be more successful applying with the lender they bank with.
I’ll also complete a credit check with clients to uncover any prior defaults or unpaid phone bills. It’s important to have these cleared before an application is submitted.
Knowing what information lenders are looking for is critical to submitting a successful loan application. Time is also often an important factor in this competitive real estate market.
If time is of the essence, clients can speed up the process by preparing supporting documentation ahead of our meeting. Providing their most recent bank statements, rental ledgers and credit card or loan statements along with standard employment and income documentation will mean decisions, and applications, can be made even faster.