All financial institutions have their own set of lending policies when assessing home loans. Borrowers should research the criteria under which mortgage lenders assess lending applications. A simple way to do this would be to consult a professional mortgage broker who will have the necessary information easily available. However, the borrower can also do his or her own research on a lender by lender basis either via the websites or direct contact with the lenders.
The main criteria that the lenders look for and how to meet the requirements are given below.
Mortgage Lenders Look for Genuine Savings
Lenders require the borrower to save a portion of the deposit for a home. This can vary but in general is either 5% or 10% plus fees. For example, in Australia, to buy a house for $400,000; a borrower will need to have savings of $20,000 (5%) or $40,000 (10%) plus the fees as set by the different states.
In addition, the amount has to be saved over a period of time- usually at least three months- and documented proof will be required.
Therefore, borrowers should ensure that they have a separate savings account into which they deposit funds regularly.
Stability of Employment
The borrower’s employment record is an important factor when assessing serviceability, ie., capacity to repay the loan. Being in the same job for at least six months and having completed the period of probation is a minimum requirement with most lenders.
If a borrower is thinking of changing jobs, then they should either purchase the property prior to leaving the current employment or wait till they are settled in the new job for at least six months before applying for finance.
Suitability of the Property Being Purchased
Some Lenders have policies covering the size of the complex in which the security property is situated. For instance, an apartment in a complex of over 50 apartments may not be considered suitable at a five or ten percent deposit. It may be possible to get a home loan on this type of apartment if the borrower has 50% of the purchase price as a deposit.
Before making an offer on a property, borrowers should ascertain the criteria under which lenders will consider the particular type of apartment or unit.
Borrower’s Credit File
A negative credit file is something that most lenders will not overlook. The default listed on the credit file could be something as simple as an overlooked telecommunication bill. However, lenders take a very serious view of unpaid bills, however small or insignificant they may appear.
Borrowers should be meticulous in maintaining their credit file in good order by paying all bills when they fall due. If a bill was not paid on the date due because of a dispute, as soon as the dispute is settled and the bill is paid, the borrower should contact the credit reporting company to ascertain that a default is not listed against his or her name. Some companies are quick to list defaults as soon as it happens irrespective of the reason for the non-payment.
Lack of Up-to-Date Documents
Financial institutions need documents to check the accuracy of the information provided in the application form. Pay slips, bank statements, existing loan statements and any other documents that provide confirmation of the income and liability status of the borrowers should be kept for this purpose.
A simple file in which all statements are kept will help when making an application and the borrower has to provide documents covering a period of three to six months.
Researching and planning to meet the lending criteria of the mortgage lenders will help to eliminate the rejection of the home loan application when a suitable property is located and an offer is made.