Disclaimer: House Proud Realty does not dispense financial advice. The following article is commentary which is general in nature and is not intended to be financial advice and is not specific to your own financial circumstances. See a professional financial adviser if you require financial advice.
Making a strong case in your loan applications has never been more important. To make a strong case in your loan application, there are a few things you can do. Here's our list of what you can do to make the strongest case possible and increase your chances of a loan approval. This applies whether you are wanting to buy your first home or wanting to buy an additional property as an investment.
1. Do your research and shop around
Make sure you research rates through traditional banking channels and mortgage brokers to find the best rate possible for your financial situation. Remember securing a loan isn't always about the interest rate. Your Loan to Value Ratio (LVR) will be crucial in determining your interest rate. To calculate your interest rate, the lender will divide the amount of the loan you require by the value of the property. Naturally, the greater the LVR, the higher the risk you represent to lenders. This will change the array of loan products available to you.
House Proud Realty strongly suggests that you connect with a mortgage broker, rather than going directly to a lending institution. You are likely to get a higher level of service from a broker and be introduced to a range of lending products that are most suitable to your situation.
2. Pay down personal debt ASAP
To improve your credit rating and overall financial position, paying down personal debt should be your first priority. For property investors needing finance, this is particularly important. This is because paying down personal debt frees up your income which puts you in a stronger position to service your property finance.
3. Decrease and closely monitor discretionary spending
It has been widely covered that lenders are now looking at applicants' discretionary spending habits as part of the loan application process. For at least a few months before you submit a loan application, aim to decrease your discretionary spending on things such as restaurant meals, Uber Eats, clothing, consumer products, and other discretionary lifestyle expenses. Try to eliminate gambling expenses from appearing on credit card or bank statements - it could turn lenders off.
Obviously, you don't want to sacrifice enjoying yourself in this process, so if you can't go without your weekly home-delivered take-away meals, you could also demonstrate that you budget for lifestyle expenses by setting a specific amount aside each month and not going over it.
4. Refinance a current loan If you've had a Principal Place of Residence loan for at least 5 years, you may be able to refinance your current balance over a new 30-year period. This will reduce your repayments, freeing up more of your income to service a loan on a new investment property. While it can be discouraging to get knocked back for a loan, remember it's not an uncommon occurrence in the current credit market. Being proactive about strengthening your financial position, budgeting and putting yourself in the shoes of lenders and brokers will help you make sure you present yourself as a desirable loan applicant.
