You've spent time and money in the early stages of your renovation preparing designs, only to find out your bank application for your loan has now failed.
Let's find out how to avoid this dilemma and the disappointment that goes with it.
Since the Banking Royal Commission has played out, more than ever, the banks and lenders are beginning to implement tighter lending practises that can strike fear into even their most loyal clients.
What can you do to ensure that your application gets looked at favourably and gets the tick of approval?
Let me share with you 5 great tips for getting the banks to say "Yes"!
TIP 1. Calculate Your Maximum Borrowing Capacity
As we all know, rates are at historical lows. There are signs in the economy that the honeymoon is about to end relatively soon, and rates will begin to weave upwards.
It's easy to get carried away and borrow to the hilt for a maximum lend. Factor in higher payments as part of your stress test of your mortgage. How will you cope when rates begin to climb? Banks do exactly that; they stress test you're situation at a rate of 7%.
So if you are aiming for the clouds and trying to borrow as much as you can, then you may come to a screeching halt when you are applying for finance.
TIP 2. Know Your Family Budget
Applicant's family budgets are the biggest concerns banks have these days, not equity in the property. Being able to service a loan easily is their main concern.
Most people don't truly assess their own family budgets. However, the banks are now taking this on as part of a standard loan assessment. Be forewarned that they want written proof of 13 different categories of expenses from groceries, to education, to council rates and everything else in between. Banks have their own guidelines to check if your expenses are either above or under your means.
Guessing these costs isn't going to cut it here; it's actual costs that are required so be over prepared and honest with yourself.
TIP 3. Have a Stable Employment Record
Lenders like borrowers who have a relatively stable recent employment record – at least 6 - 12 months or more in your job, receiving regular income. If you are looking to change company at the same time you are looking to source a loan, seriously reconsider one or the other. Stay in the same employment at least until you have the mortgage.
TIP 4. Have Sufficient Deposit
Deposits are now being increased by the banks as part of their lending criteria. Now the banks want 5 - 10% depending on which bank you borrow from.
Other costs that need to be factored in if you have a low deposit are settlement fees, increase on Home Insurance, Preliminary Building Costs including design and building applications. These costs need to be added so the bank can calculate your ability to settle on the loan.
TIP 5. Use a Mortgage Broker
Not all lenders can approve all loans. We're even finding that even if you have been with a bank for years as a loyal customer, they're declining finance. Each lender has different lending criteria which creates hurdles and obstacles that trip up your application.
Each application has its own complexities and knowing which lender best services your borrowing needs is best served by using a Mortgage Broker; that takes all of the guess work away. We have working relationships with highly experienced brokers who can find the best loan to suit your situation and would gladly refer them to you.
Are You Ready to Renovate?
Talk to Constructive Homes so that you can get your custom home renovation under way with the assurance that you are working with a Certified Professional Builder who understands the value of your renovations and helps you avoid being refused bank finance.