Traps that could ruin a home loan application
A mortgage application is almost like asking someone to trust you with a small fortune. A bank or lender will want you to cross every “t” and dot every “i” when applying; an even the smallest mistake could end up costing you more than you bargained for. So what are the most common traps people fall into when applying for a home loan, and how can you avoid them?
1. “Forgetting” about certain expenses and credit cards
A lie by omission is still a lie. A few people applying for home loans will cover up the fact they have more expenses than they let on. These expenses could be extra credit cards for emergencies, personal loans they have yet to pay off or defaults on their credit file. CEO of Savvy Bill Tsouvalas says that the truth will set you free and get you the keys to your dream home. “There is no point in fudging numbers to financial professionals. Numbers are their life – they will catch you out sooner or later! Brokers and lenders are there to help you, not be the bad guy. You must give to gain.”
2. You don’t send in the right paperwork
Documentation is everything when it comes to home loan approval. Only sending in a part of your required paperwork such as notices of assessments, employment records, financial statements and other crucial information may see you walk out with conditional approval, or no approval at all.
3. Trying to borrow too much
Many eager homeowners find their dream home, apply for the loan and find they’re rejected because they’re asking for too much. This is especially painful if they have already bought the property at auction.
Other times, borrowers are unaware of lending criteria; some banks and lenders put a cap on what they will lend for. This could be property sizes, certain postcodes, high density dwellings and many other aspects of property. To avoid disappointment, buyers should get some kind of pre-approval. That way there are no nasty surprises. You know exactly what you’re in for, you know how much you can spend, and there’s no anxiety when it comes to closing the deal.
4. You don’t shop around
Each lender will cast a different eye on your loan application and make different assessments. One may lend you what you asked for – another might meet you 80% of the way. You should get as many quotes as possible before settling on one lender. Also – just because a lender will give you the highest amount doesn’t mean you should take it. You may end up putting your finances under immense strain.
5. You don’t have a big enough deposit
Not having a enough of a deposit might send lenders packing; and kill your dreams for approval. You should know how much the house you’re looking for costs, and to save at least 5% of the purchase price – but you should aim for something even higher. Anything less than 20% requires you to take out lenders mortgage insurance. LMI isn’t for you – it’s for the lender, in case you can’t keep up with payments. You should also keep a large enough buffer for incidentals such as stamp duty, legal fees, application fees and inspection costs, too.
6. You look for interest rates over all else
Low interest rates are better, but not all low interest rates are equal. Some loans may have higher comparison rates – a figure that includes the interest rate and most fees – even though their base interest rate is low on paper. Others may not have the right structure such as offset accounts or redraw facilities to save them money right from the get-go.
Author: Bill Tsouvalas is CEO and managing director at Savvy, mortgage brokers specialised in refinancing and subprime home loans. He has a been working in the mortgage & asset finance industry for over 10 years. He often writes articles on mortgage, finance, and insurance topics.