Why A job Isn’t Enough: Financial Tips That Will Help You Retire Younger
HOME loan approvals are hard to come by in 2017, so steer clear of these six traps that are stopping your property journey before it has even begun.
BANKS are making it harder to get a home loan; especially if you are a property investor, so it is important not to give them any excuses to reject you, experts say.
Restrictions on property investor borrowing were introduced recently by the Australian Prudential Regulation Authority (APRA), to bring the market under control and mitigate the risk of a real estate bubble bursting.
Nathan Birch, founder of buyers’ agency B Invested and owner of close to 200 investment properties, says the climate is much different from two years ago.
“Gone are the days of asking for the cheapest interest rate from a broker,” he said. “Now it is more like asking who will lend me the money and on what terms.”
Mr Birch said borrowers might be sabotaging their own chances without even knowing it in the following ways:
Credit cards with generous limits
If you have three credit cards with $10,000 limits on each, the bank will think you need a $30,000 credit buffer to maintain your lifestyle, even if you rarely use the cards.
“If your bills only reach $2000 each month, reduce your limit,” Mr Birch said. “Restrict yourself to one card. You will save on annual fees and look like a more responsible borrower to the banks.”
Bad credit score
Past unpaid bills or late payments may have affected your credit score, even if they were accidental. Before you apply for a loan, get a copy of your credit score for free from online providers such as Get Credit Score and Credit Simple and try to fix any negative marks against your name.
Personal or unsecured loans
These are the definition of bad debt in the bank’s eyes as they are not attached to an asset.
This tells the bank you are living beyond your means.
Leaving a role or starting your own business is not a great option when about to apply for a home loan. Banks need proof of a stable income source of 12 months or more, not someone on probation at a new role or struggling to attract new clients.
Applying when shopping around
Every time you apply for a home loan or make a credit inquiry it means points against your credit score. Banks will assume you have been rejected by other lenders. A good mortgage broker can help you find the loan that will suit you before you apply.
Refinancing to fixed interest
You may think locking in an attractive interest rate is a smart move, but this can mean you are bound to a contract and unable to release equity or vary your loan to improve cash flow for a number of years.
Originally published as Six ways you’re sabotaging your home loan application.