Obtaining finance can sometimes be difficult especially when you require fast approval due to short settlement time frames or refinance pressures. Here are 7 tips to getting your next finance application approved fast and to avoid any delays with lenders.
1. Know your credit history
Probably the most important point! It is imperative that you know exactly what is on your credit file. It is highly recommended that you obtain a copy of your credit report prior to applying for credit so that you can either rectify any issues or inaccuracies on your report and obtain an accurate understanding of your ability to obtain credit based on your prior credit history. You can obtain your credit report online here, using our fast credit check service.
2. Understand your property value.
Once you have submitted your application and received a conditional approval for your loan, the next step is generally for a valuer to ascertain the current market value of your property for the lender. Valuers generally use what is known as comparable sales methodology in determining current market value.
A valuer will inspect the subject property, detail the conditional and improvements the locations, size and overall appeal of the property and the area, then compare the subject property (your security) to a number of other properties in the same suburb or close vicinity which have SOLD within the last 180 days.
That last part is the key, in order for a valuer to ascertain current market value for mortgagee purposes they generally only consider ‘like sales’ as comparison with the last 6 months. If your property is located in an area with minimal recent sales, then it is likely that your property value will be harder to ascertain.
It is recommended that you obtain as much information as possible on recent sales in your area for similar properties as well as any data from real estate information providers such as residex or rpdata so that you can understand your estimated value and have information on hand to provide to the valuer to support your figure.
3. Ensure your financial statements and tax returns are up to date and readily accessible.
Banks and other lenders will want to see your most recent tax return and tax assessment notice when applying for a full document loan, so its important to have those readily available, things like payslips, group certificates or employment letters should also be close to hand. For self-employed applicants 2yrs financial statements and 2yrs tax returns with assessment notices should also be on hand.
4. Review your mortgage and credit card statements
Lenders will often review the conduct of your existing credit before approving any further credit. Often overlooked is the repayments on credit cards, personal loans and mortgages. Generally 3-6 months statements on an debts being refinanced is required, this is so lenders can view the conduct of your existing credit to determine if your a regular and consistent payer. It is important to have the most recent statement(s) on hand for your loan application to avoid processing delays, so if you statement cycle is 6 monthly, it is ideal to obtain a most recent month end statement showing all transactions up to the time of your application.
If there are any missed or late payments on your statements it is important to provide a sufficient explanation to your lender or broker so that they can understand your reasons for late or missed payments if they are to consider your application.
5. Know and understand your likely transaction costs (eg stamp duty, fees etc)
A common mistake by new borrowers is not fully understanding transaction costs on purchases and refinances. There are plenty of free stamp duty calculators available on the internet, which will show you the exact amount of stamp duty applicable to your purchase as well as the applicable transfer fees. Other things to consider are loan application fees, lenders mortgage insurance premiums, valuation and legal fees which are all general deducted from settlement proceeds, which affects the amount of your required contribution to complete the transaction.
It is highly recommended to ask your broker or lender to provide what is known as a ‘funds to complete’ calculation so you can clearly see your position in relation to transaction costs.
6. Ask for a document checklist before applying
Always important to ask for a document checklist for the lender you are applying with, so that you can gather all required supporting documents. Different lenders have different requirements and some will require more paperwork than others depending on your circumstances and the loan you are apply for. To avoid delays and applications with missing information it is important to check carefully the lenders document requirements for the specific product you are applying for to ensure you can full full all required documentation.
7. Understand how to maximise your borrowing capacity
One of the most common questions asked by borrowers is ‘How much can I borrow’. In lending circles this is commonly known as ‘loan serviceability’ i.e Can the borrower ‘service’ the proposed credit along with their existing credit and living commitments. Lenders consider a number of factors such as
- Is the applicant married, defacto or single?
- How many dependents does the applicant have?
- What is the applicants gross annual income?
- How is the income derived (i.e self-employed or PAYG)
- Does the applicant receive bonuses or overtime?
- Does the applicant have any rental income?
- Does the applicant receive any centrelink income?
- What is the current limit on the applicants credit cards?
- What are the monthly repayments on the applicants existing mortgages and other debts?
- What are the applicants monthly living expenses?
These are basic factors considered in ascertaining borrowing capacity. In order to maximise your capacity for further borrowings, you can consider things such as reducing your credit card limits, paying off any personal loans or credit cards with smaller balances as well as updating or increasing rentals on investment properties.
If you would like further advice on your borrowing capacity or any advice on your current credit facilities, please don’t hesitate to contact us.