Often clients will engage a mortgage broker for help when their loan has been declined by a bank. There is still a perception out there, that brokers help people after they have had no luck with their bank….this is absolutely not the case, in fact it is quite the opposite! Brokers will review their client’s circumstances and recommend banks that will suit their circumstances from the onset. To avoid any unnecessary disappointment – speak to a mortgage broker first. Here are few areas that might cause borrowers difficulty – all of them can be avoided by visiting a mortgage broker!
CREDIT SCORE
Most banks credit score applications. A credit score represents the creditworthiness of the person. A credit score is primarily based on a credit report information typically sourced from their credit file, the depth of relationship a person has with a bank and the overall stability of a client – how long they have been in their current job and at their residential address.
This credit score is used to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.
CREDIT FILE HISTORY
If you have unpaid debts, late payments, excessive inquiries for credit (even if you didn’t go ahead with them), your loan might possibly be declined due to an over active credit file. Other important factors to consider is the age of the file, if your file is new than this will also impact your approval. Utilities such as power, gas and telecommunication organisation also credit check applications for new services, these are also included as inquiries.
The best way to ensure an approval for your home loan is to keep up to date with all your financial commitments and limit the amount of finance applications you make at any one time. We can organise a free credit check for you – simply call the office.
DEPOSIT
All home loans will require some level of contribution by the client. Most banks will require clients save a minimum of 5% of the purchase prices. In addition to the contribution, there may be some requirements around holding the funds for a minimum period, but your adviser should cover this off with you.
The most important thing to be clear about is how much the minimum deposit is. You should account for additional fees and charges. Al this information must be clearly outlined for you prior to entering any formal negotiations for purchase.
CLIENT STABILITY
Consider your loan application as your profile, so it is important to show the lending institution you have a stable place of residence and place of employment. It is said that clients who move around poses more risk than those who don’t.
Stability in your job is extremely important factor when being granted a home loan, as this suggests that the borrower can meet the repayment commitments. There are some banks who will decline your application if you are new to your current job, regardless of your income. Most banks aim for six months of solid employment history.
PROPERTY VALUATION
Lastly, as most banks will have a limit to their borrowing, ascertaining the true value of the property is crucial in setting the loan limit. Once the limit is set, it is important to factor in additional fees and charges such as stamp duties, mortgage insurance, fees and charges. If your valuations does come in lower you will be required to pay the difference in order to reduce the loan to value ratio and have the loan approved.
Upfront valuations poses a useful tool in obtaining a finance approval, we have access to most banks valuation platforms which allows us to utilise this option for clients.
Remember, speak to a good mortgage broker and you will avoid a decline – good advise is free
Until next time, all the best
Dean