The lending enviorment has changed dramatically within the last year with over inflated property prices, the Royal Commission and unethical practices. There is now a tightening of lending restrictions and it is becoming more challenging for borrowers to secure Finance.
A number of clients coming into our Macarthur office are finding it harder to deal with the banks and are now using the professionals that are recommended by RP Wealth Management to assist.
In this article we let you know what Lenders are looking for when they are assessing your Loan Application.
Credit history
When Banks assess your application, they use a credit rating system and score based on your previous history of lending enquiries with different institutes, bill payment history and defaults.
It is always best to ensure you have a good credit score before applying and get any mistakes fixed if you feel there is a discrepancy.
You can get a free credit score from a number of online providers. The results may vary depending on which credit reporting agency is used. The following websites offer a free credit rating:
Guaranteed income
Serviceability of a loan is becoming the biggest factor when a Lender is assessing you and they want to know that you have a regular income coming in so you can repay the debt owed. If you are Self-Employed like myself it is best to have up to date tax returns and a good record of payments received.
Genuine savings
Make a genuine effort to set aside money from your pay each cycle as the bank wants to see that your expenses do not exceed your income and you are able to survive with the increased cost of having a mortgage.
Fixed expenses
This comes back to the serviceability of a loan and the Lender wants to see that your fixed expenses are manageable. Keep an eye on your expenses and reduce them where possible before applying for a loan as this could change the outcome of the agreed amount or decision given to you.
Other loans and credit cards
If you are holding other loans and credit cards, than Lenders will look unfavourably on this so it is best to consolidate this in to one or reduce your credit limit to the minimum as the full credit limit becomes assessable.
Stability
Lenders do not just consider your Financial stability they also take into account other factors such as job security, address change etc. A bank will look unfavourably on you if you are changing jobs every 3-6 months.
From July 1, new legislation will come into place about the type of information a lender is required to provide regarding your credit facilities and your ongoing debt repayments.
This detailed information will be recorded on your credit file and can significantly affect your borrowing abilities in the future.
Prior to this, your credit file didn’t hold a lot of information on your monthly repayment history, credit limits or account open and close dates.
This means lenders will report 24 months of repayment history, account open and close dates and credit limits for all open consumer credit accounts, which includes home loans, credit cards and personal loans.
If you pay your debts on time, this positive information will be included on your credit file. If you occasionally make a late payment or miss a payment, this will affect your credit score.
While the finance sector is becoming more competitive, a tightening of lending restrictions and the availability of more consumer finance information also means it is more important than ever to get things in order before applying.
If you need assistance with the above, please don’t hesitate to contact our office.
