Intending to borrow? Get organised.
If you’re intending to borrow in the near future, you should ensure your finances are well organised to not only minimise approval times, but also maximise the amount you can borrow
Having your ‘financial house in order’ can be as simple as having your tax returns up-to-date, making all bill and loan payments on time and avoiding taking on extra credit.
It’s almost impossible to provide too much information
It’s not unusual for lenders to request additional information while they’re assessing a loan application, even if all of the documentation initially requested has been supplied.
If you want to give yourself the best chance of being approved for a home loan, you want it to happen sooner rather than later, and you want to be able to maximise the amount you can borrow, take the time to get your affairs in order first.
Even something as simple as providing your last two payslips – as required by a lender – may not give a clear picture of your true income. Providing detailed information about your full year’s income, rather than just the most recent payslips, will help the lender to see the bigger picture.
Provide up-to-date information
One of the most common reasons home buyers find themselves short of their anticipated borrowing levels is that they don’t have up-to-date financial information to prove their income levels to their lender.
Financial institutions must demonstrate they’re satisfied that borrowers can afford to repay their debt.
Our own recent inquiry of more than 20 mortgage lenders show a single borrower on a gross annual salary of $60,000 and a credit card liability of $5000 was able to borrow $253,309 with the most frugal lender and approximately $359,308 with the most expansive lender.
While many factors are taken into account when assessing a loan application, this example demonstrates the range within which lenders interpret a borrower’s ability to repay – and the importance of being organised to give yourself the best chance of securing the loan for the amount you want.
Cut the credit
If you’re intending to borrow, you should minimise the number of credit and store cards you have and the available limits.
Aside from making your credit file ‘busy’, which in itself can cause declines as lenders’ automated credit scoring systems can class you as a ‘credit junkie’, it can also make a big difference to your borrowing capacity.
When most lenders assess your ability to repay a mortgage they assume any credit cards will be drawn to their full limit.
Lenders look at the credit limit on your credit cards as a liability you may have in the future, even if you don’t currently owe a solitary cent.
For instance, if you have a credit card with an $8000 limit and another with a $4000 limit, a lender will assess this as $12,000 of existing debt. Also resist signing up for any additional debt and make sure payments are made on time – on everything from your mobile phone account to your personal car loan. This is becoming increasingly important as more and more of your repayment history is being recorded on your personal credit file which is thoroughly scrutinised by lenders.
Seek professional advice
Being organised can also mean securing your ‘dream home’ by being able to offer attractive timelines for formal finance approval and settlement – reinforcing the importance of having ‘all your ducks in a row’.
Why not talk to a mortgage broker today to find out about what you need to get organised to borrow. They can ensure that all the required information is presented in the best possible light from the outset, taking much of the pressure and stress off you, and ensuring the loan will be approved as quickly as possible.
