7 Insider Tips To Improve Your Chances of Home Loan Approval
If you’re an Aussie looking to tick all the criteria boxes and make it through lender scrutiny, here are the seven biggest trends that will improve your chances of home loan approval.
Going for a home loan is never an easy process, and tight credit conditions haven’t made it any easier. Moving forward, the biggest factors determining your mortgage approval will be surrounding your expenses and affordability.
With the help of our home loan experts, Mark Walker and Joshua Rees, we’ve put together a list of the seven most important lending criteria changes you should expect determining your home loan eligibility.
1. Obstacles surrounding loan approval
Looking back a couple years ago, getting approval was easy when property prices were hitting all-time highs. Unfortunately, things are quite different now that the market has softened considerably.
Given lower property valuations and policy uncertainty surrounding the Royal Commission, it’s no surprise banks and lenders are reducing the availability of mortgages.
If you want to be eligible for a home loan, it is wise to seek approval sooner rather than later.
“The main change at the moment we are having in regard to lending criteria is around living expenses, and the scrutinising of clients transaction and credit card statements, to make sure what they say they are spending matches those statements.”Home loan assessor, Mark Walker
2. The approval process is taking longer
The days of a 24-hour turnaround are mostly behind us. Originally, your initial approval may have taken approximately 1 to 2 business days. However, as mortgage applicants face growing obstacles and scrutiny, the length of time to approval is growing. These days, it’s not uncommon for approval to take 5 to 6 business days.
Preparing your documents and securing a loan before you start your property search will give you, the borrower, clearer guidance when it finally comes to finding your dream home.
If you are buying a property or home, be aware of these changes. Consider obtaining pre-approval through a mortgage broker to avoid the toughening changes to home loan lending criteria.
3. Changes to your borrowing capacity
This one may be a given, but it is important to remember when setting your own expectations.
The credit process has tightened significantly over the past year due to tougher regulations, lowering house prices and uncertainty surrounding the banking royal commission. As a result, you may not be approved for the same amount you may have received a year ago.
If you’re thinking about pushing your borrowing capacity to the full extent, you need your expenses in order.
Most lenders have reduced borrowing capacity over the past 12 months.
The main triggers for reducing borrowing capacity have been higher ‘minimum’ living expenses with a lender and higher ‘assessed’ repayments for existing liabilities.Home loan assessor, Joshua Rees
4. Lenders require more information
There have been a few changes to the amount of documentation lenders are requiring for home loan eligibility. Due to the royal commission, it is likely all lenders will implement similar changes over the next 12 months.
Some lenders are requiring between 1 month to 4 months of ‘Transaction Account’ history to verify living expenses and disclosed liabilities. (Your Transaction Account is the bank account that the salary is paid into).
Some lenders are requiring between 1 month to 3 months of ‘Credit Card’ statements to verify living expenses and repayment conductJoshua
5. Increased scrutiny of expenses
The heightened level of analysis is ever-increasing as lenders and banks restrict mortgage eligibility. This point has and will continue to be one of the most important factors determining whether you pass the lending criteria for home loan approval.
Don’t be surprised when your loan application is being questioned over an enthusiastic level of spending on food delivery services. We’ve seen recent examples of this happening.
Our loan assessors have noticed growing scrutiny of loan documents. Some lenders are forensically examining living expenses and comparing the ‘actual’ expenses against what has been declared in the application .
“Originally, living expenses were declared in the application and if they were reasonable (based on income, relationship status, dependents) it would go through without too much scrutiny. This is no longer the case. ”Joshua
If you’re planning to apply for a mortgage, organising your expenses should be your top priority. You can check our 2019 guide to buying property for some helpful tips.
6. Lenders are asking more questions
Lenders are changing how they view the long-term viability of loan repayments.
An ‘exit’ strategy is required when the loan term is due to expire post retirement age (67). An exit strategy needs to outline the client can repay the remaining loan balance or continue making repayment post retirement without incurring financial hardship.Joshua
This used to only be required when an applicant was over the age of 50, but is now generally required when the applicant is 37 or over.
7. What’s happening with Interest-Only loans
Lenders are making it more difficult to access interest-only for owner occupied loans and some will not offer it at all for purchases or refinances. Detailed submission notes are required to outline why interest-only is suitable for lenders who will issue owner occupied interest-only loans.
The Australian Prudential Regulation Authority (APRA) has recently announced they will lift restrictions on interest-only residential lending from the beginning of 2019. The financial regulator’s restrictions were imposed in 2017 and forced lenders to limit new interest-only home loans to 30%.
‘[The temporary restrictions] have now served their purpose of moderating higher risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years.’APRA chairman, Warne Byres
This may be some good news for the large number of Australians who are coming to the end of their current interest-only mortgages. Additionally, the removal of this cap on interest-only loans could change lender policy. Keep an eye on this space.
Need help qualifying for a home loan?
Our friendly team of experts are always happy to help.
If you’ve got a question regarding lending criteria or need help with approval or refinancing, contact our mortgage broker today.
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