Lending regulations have tightened up considerably in the last few months. So much so, it’s time to examine the 11 issues that could put the kibosh on your home loan dreams and aspirations, and some solutions on how to fix them.
Godsend or big mistake?
The fact is, despite their rising popularity and fast convenience Payday or cash loans are definitely a huge no, no if you are looking to apply for a home loan, because any prospective lenders will get the impression that you are financially stretched and are going to be a lousy risk
Slowly but surely the Nanny state grows
With record low interest rates the demand for home loans have not been this high since before the Global Financial Crisis. However, authorities are now stepping up the pressure on lenders to reign in their previous unconstrained lending practices.
This is being done under what is known as the National Consumer Credit Protection (NCCP) act, or Responsible Lending Practices. When first initiated in 2011 there wasn’t too much fanfare about the new rules and in the main, other than a few mild policy changes, it was pretty much business as usual.
That said, in the last few months things have changed dramatically and the Australian Prudential Regulatory Authority (APRA) have been bringing pressure to bear on the banks to start enforcing the new rules to the letter.
Also, along with the current Royal Commission Inquiry into banking practices, the banks themselves are trying to put on a ‘Goody, Goody Two Shoes Face’ to try and convince the Inquiry and associated authorities that their bad behaviour is a thing of the past and they have now turned over a new leaf.
They now want to know what size underwear you use
Anybody who has made an application for a mortgage over the past few months can tell you that things have become a lot more difficult to obtain any kind of loan now that the banks have gotten serious about the new affordability lending. They are now starting to forensically focus on borrower’s income and expenses in much finer detail. Some lenders are insisting that applicants provide them with their latest bank account and credit card statements so they can ascertain how much goes in and how much goes out on a regular basis.
In other words, they will now know how much your hair cut and dry cleaning bills are.
Many would be borrowers will have to be a whole lot more savvy nowadays if they have any chance to meet these strict new requirements before making any mortgage or personal loan applications.
Financial house cleaning is now in order
In fact, most seasoned mortgage brokers will tell you that you should put your financial house in order at least 3 months in advance of submitting any kind of application. On the other hand though, depending on your chosen lender it may necessitate you do this at least 12 months in advance.
Whether you’re looking to purchase your first home, upgrade to another, downsize, refinance or buy an investment property you’re going have to ensure that your finances are in good order if you want to give yourself any kind of hope in getting any kind of home loan application approved these days.
Here are 11 issues that could scuttle any mortgage aspirations you may have and how to rectify them.
1 RECENTLY SELF-EMPLOYED
Prior to and during the financial crisis you could get loans based on what you told the bank you earned. Yes, that’s correct; they would take your word for it. Funnily enough they earned the nickname of ‘liar loans’. All the borrower had to do was sign a self certification document declaring what their annual earnings were. I’m sure some bank staff occasionally had a good chuckle when they saw applications from occupations like a bus driver claiming to make $180,000 a year. Nonetheless, they opened a gateway for many self-employed people to purchase their own home. However, the continuing abuse of these mortgages and the global financial crisis soon put paid to these loans.
The market conditions today, show many self employed people struggling to qualify for a home loan. All main stream lenders require that self-employed individuals have had an Australian Business Number (ABN) for at least two years, have been trading profitably for at least two years, and have at least two years financials available. A couple of lenders will accept one years tax returns, but you still must have had an ABN number for two years.
That said, most lenders will also do what’s called Low Doc loans. You still will need to have held an ABN for two years, but now the lenders will rely on your trading bank statements and/or Business Activity Statements (BAS) to calculate your income.
Beyond that there are lenders who will cater to newly self-employed people if they only have had an ABN for 1 day, 3 months, 6 months and 12 months. Of course, they view these loans as higher risk and they come with a premium when it comes to interest rates, fees and charges. Nonetheless, they aren’t the end of the world as they can be used as a means to an end. Meaning, you can have your cake now and refinance the loan to a better rate a little way down the track when you have the required documentation.
Self-certified loans previously offered a way for the self-employed to buy a home, but abuse of these mortgages – dubbed “liar loans” because they required no proof of income – brought about their demise during the financial crisis. The Financial Conduct Authority will officially ban self-cert mortgages in April when the mortgage market review rules come into place, but this has left some self-employed borrowers struggling to access finance.
Self-employed people finding it difficult to get traction in obtaining a home loan may well consider getting in touch with a well-seasoned mortgage broker
2 ANY MAJOR CHANGES IN LIFESTYLE CAN AFFECT YOUR ELIGIBILITY
Bankers like to see stability, it calms their ‘Risk Meter’ down no end (lol). Switching jobs or having another child at the time of a mortgage application can cause lenders to scrutinise your application a lot more closely. If you’re expecting another child lenders will increase your number of dependents immediately even though the baby isn’t quite in this world yet. That in turn will reduce your borrowing capacity. Lenders like to see stable residency and employments.
3 AVAILABLE CREDIT LIMITS OR NUMEROUS OUTSTANDING DEBTS
Lenders get nervous with people who have a lot of existing outstanding debt. So, it’s a good idea to pay off as much debt as possible prior to applying for a mortgage. This will also increase the applicants borrowing capacity when existing liabilities are reduced. Another key point to observe is that lenders go on credit card limits and not the balances owed on them. Therefore, where feasible reduce your credit card limits as much as possible if those limits are affecting your borrowing capacity. You can even cancel then and reinstate them after your mortgage has closed/settled.
Always keep in mind, if you are able to present lenders with a well-managed personal financial profile the better they like you.
4 ARE YOU ON THE ELECTORAL ROLL
Electoral rolls are a handy tool that some lender use to confirm a potential customers identity. If you’re not there it can at times cause some confusion and cause you additional frustration when the lender starts to pursue you for additional ID documentation verification.
5 WHEN WAS THE LAST TIME YOU LOOKED AT YOUR CREDIT REPORT?
It’s important to keep an eye on your credit report, regardless of how good you think it is. Equifax (formerly Veda) will send you a free copy in 10 days or overnight for a fee. Identity theft is rife these days, so don’t let yourself in for a nasty surprise the next time you go for a loan.
6 PAYDAY LOANS ARE NOT A GOOD LOOK
Payday or fast cash loans with their outrageous rates of interest give mainstream lenders cause for concern when they come across them on a borrower’s profile. It gives them cause for thought that any individual who uses them regularly is stretched financially or may be having difficulty managing g themselves monetarily.
It gives the impression that a person cannot make it from pay check to pay check and they use them as a desperate measure to get by on a day to day basis instead of having a practical back up plan if they get themselves into a situation that needs sorting.
7 KEEPING IT AFFORDABLE: DON’T OVER REACH BY BORROWING TOO MUCH
We now have a generation of borrowers who have no idea what 7 ½ – 8% interest rates on a mortgage would be like. At this stage of the game where interest rates are at record lows it’s a great opportunity to take advantage of the situation and pay down a mortgage as fast as possible. Keep in mind mortgage rates won’t always be this low and when they do rise that you will be able to afford the higher repayment amount.
Use your mortgage as a stepping stone to eventually bypass the Jones’s. Start with a smaller property, a smaller mortgage and pay that down with your extra spare cash to create equity that you can use to step into a larger property.
8 COURT JUDGEMENTS, DEFAULTS AND BANKRUPTCY
These don’t preclude you from getting a home loan, nonetheless if you have experienced damaging financial circumstances that have ended you up carrying an impaired credit report then mainstream lenders won’t want to know you.
There are enterprises out there that are known as alternative lenders and they exist in the main to cater to people with impaired credit profiles. Should you find yourself in this situation we highly recommended you find a mortgage broker who specialises in this niche to guide you through the minefield of fees, charges and high interest rates.
Keep in mind though if you have a minor paid default under $1,000 on your record there is a possibility some main stream lenders will still consider you if you have a reasonable explanation for the default.
9 ARE YOU A CREDIT JUNKIE AND LEAVING TOO MANY FOOTPRINTS?
Every time a person applies for credit there is a listing of that credit request noted on the persons credit file. If the number of listings are low there isn’t too much to be concerned about, it may affect your credit score marginally.
That said, if you are frequently putting in applications for credit this and credit that, any credit assessor assessing your mortgage application is going to get a negative impression on how you can’t find what you want and how desperate you are.
Be careful when making financial inquiries over the phone or the internet as the person on the other end could be pulling your credit file without you even being aware of it.
If you’ve ever been declined or have concerns about the number of enquiries on your credit file, use a broker as they can sort through all the various lenders and loans to find the one you will possibly succeed with.
10 GAMBLING SITE PAYMENTS, OVERDRAWN ACCOUNTS AND OVER THE LIMIT CREDIT CARDS
Showing regular payments from your bank account or credit card statements will in most cases get you a swift decline notification as they are definitely a big ‘No-No’ in this age of responsible lending. Even though payday or fast cash loans are fairly new to the lending world lenders still get nervous when they see them. If you show a prospective lender any loan or credit card statements that have late payments or over the limit notations showing on them you will in most instances get an automatic decline for your application.
11 OVERTIME, BONUSES, COMMISSIONS AND ALLOWANCES
These payments can become a bit sticky when it comes to include them to boost your borrowing capacity.
With bonuses, commissions and overtime most lenders want to see documentary evidence of the same for periods ranging from 12 – 24 months. If there’s any confusion or doubt about the payment amounts the lender will insist on an employer letter confirming the amounts and dates paid.
Additionally, when they do accept the amounts tendered they will shade the total amount by 20% and only allow 80% of those payments toward borrowing capacity purposes.
WHERE DO YOU GO FROM HERE?
Inquire in advance to any lender or mortgaged broker as to what documentation you will need for any given lender application. Keep in mind that any bank or credit card statements you provide are going to be examined for income deposits, outgoing expenses, late payments or over the limit balances.
Examine the above information carefully so you can prepare and present any application you are planning on making it in the best light possible.
Most of the time the home loan industry can be a serious and sometimes frustrating business – perhaps at times even a little over the top too serious. I know Easter Friday still seems a little way off so to help ease you through the next four days, here’s a corny joke to help keep a smile on your face and in your head until 5 o’clock Thursday afternoon.
After all of the issues that were caused through the sub-prime loan market in the USA and the Northern Rock debacle in England, Japan has now been hit with uncertainty.
Over the last week the Origami Bank has folded, additionally the Sumo Bank went totally belly up and the Bonsai Bank is considering options on how best to cut a whole lot of its branches.
Yesterday, the Karaoke Bank said that they were going to put the bank up for sale and were willing to let it go for a song.
During today the Kamakazi Banks shares did a nosedive and have now been suspended.
Although they have suffered some severe cutbacks the Samurai bank are still soldiering on
Even though they took a pretty good hit the Ninja Bank are saying they still remain well into the black.
Unfortunately though, the Karate Bank had to give 500 of their staff the chop and after some extensive investigation analysts are reporting there seems to be something quite fishy happening at the Sushi Bank where staff are in all likelihood getting a very raw deal.
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By Dave Fleming : 18 June, 2018
The ability to obtain a mortgage in Australia to purchase a home, investment property or refinance an existing loan is rapidly changing. Up until recently all you had to do was fill out an application with your personal details, provide some documents that verified your income, 100% identification documents and some statements confirming the balances on any liabilities you had.
A lot of people have no idea exactly how mortgage loans function in today’s market, therefore applying for one these days can be a little bit complicated. If you want to understand everything you can about home mortgage loans, then you should check out the article content which comes next. Stay with me in to the subsequent paragraphs to discover a number of helpful ideas and items of wisdom which can help you choose a superior home loan.
They are now asking a lot more questions
Because of regulatory requirements lenders are now forced to check to see if you can really afford the loan amount you are applying for. Up until now when you applied for a mortgage you had to state what your monthly living expenses were. If the amount you stated was in line with The Henderson Poverty Index (HPI) nobody asked any questions even if you were driving a Ferrari and had 3 kids in private school on an $80,000 a year salary.
However, this has all changed and through regulatory pressures lenders are now obliged to take a lot closer look on whether you can afford the mortgage you are asking for.
How do lenders calculate your living expenses? There are two main methods that Australian lenders now use for calculating mortgage applicants living expenses: The Henderson Poverty Index (HPI) and the Household Expenditure Measure (HEM).
The HPI or Henderson Poverty Index
The HPI was the go to expense measurement for most lenders prior to the introduction of the National Consumer Credit Protection (NCCP) act. Nowadays though, it is seldom used. It was originally predicated on a survey of 1950’s families living in New York, however for Australian use it had some tweaks made to it to update it for the local market. Basically it’s an index calculated around the expenses of a family that has two adults and two kids, from that base they used fraction multipliers for various family structures to figure out what the expenses would be for different family scenarios.
The HPI and HEM are very much alike if applied to a couple with two kids under eighteen; nonetheless, the HEM isn’t as forgiving as the HPI when it comes to sole parent families and singles.
The HEM is now becoming the method of choice for nearly all lenders in Australia today, because it was created solely centered on Australian living expenditure information, and specifically because it analyses each family type separately.
The (HEM) or Household Expenditure Method
The HEM has now become the method of choice for most lenders when it comes to the two mechanisms and it has been established by using more than 600 regularly used household items from the Australian Bureau of Statistics (ABS) Household Expenditure Survey or (HES). The HEM calculates the median expenditures of the absolute basics that someone would spend their money on (food of course, power bills, personal transport, tv, phones internet, clothing for the family). Added to that is a 25th percentile of all expenses for your discretionary basics, this will include spending on things like eating out, alcohol and childcare. Then there are expenses that are non essential, like holidays overseas or nationally that are left out of the calculations. Mortgage payments and/or rental expenses are also left out of the HEM.
Nevertheless, lenders will insist that loan applicants reveal any expenses they have over and above the HEM’s index. In other words they will drill down to find out exactly what you’re spending your money on and whether or not you have enough money left over to make the mortgage payments you claim you can afford.
Some lenders will even go to the lengths of asking for your latest bank account transaction and credit card statements so they can analyse precisely what your spending habits are.
How to increase your borrowing capacity
Never take on fresh financial debt and also pay back your established financial obligations conscientiously whilst waiting for your home mortgage verdict. As soon as your personal debt is reduced, you’ll be eligible for a more significant home finance loan. Should your personal debt be substantial, the loan request could be turned down. In the event you are approved, your rates of interest will probably be quite high.
You should not spend extravagantly while you wait around for acceptance. An excessive amount of spending may well put up a warning sign to your mortgage provider should they do a further credit assessment a couple of days prior to your appointed getting together. If you have to carry out any significant transactions, hold back until you have signed the settlement documents.
The importance of job security
Your employment track record needs to be comprehensive in order to be eligible for a home loan. Many financiers demand a reliable 2 year employment record so that you can be approved. If you happen to change jobs excessively, you might not be in a position to get yourself a home loan. Never ever give up your employment whenever you make application for a mortgage
Should you get into difficulty making your moprtgage repayments on time continue to keep talking with the financial institution that carries your home loan in every situation. Ahead of any predicament reaching the foreclosure stage, the intelligent customer understands that it truly is worth trying to create alternative arrangements with the lender. Give them a call and consult with them concerning your problems, and find out exactly what they are able to do.
The cash you will need
Chances are your mortgage company will demand a deposit. A number of financial institutions would once say yes to mortgages with out a deposit in advance, but that’s incredibly uncommon nowadays. Prior to going forward with any application form, always ask what the deposit is likely to be.
Just before you make an attempt to find a new home loan, check to see if property values have gone down. Get a property valuation ahead of re-financing your home loan to make sure you have sufficient home equity to really make the procedure advisable.
One size does not fit all
Figure out which kind of mortgage loan you must have. There are many differing types of mortgage loans. There are various time frames, a variety of repayment plans and a varying range of loan rates. You should educate yourself on the advantages and disadvantages of each one. The ideal individual to check this out with this is your mortgage broker. The mortgage broker can easily show you all your possible choices across a full range of mortgage providers.
Lenders to avoid
Be vigilant for mortgage companies who aren’t dependable. Undesirable mortgage loan techniques can easily wind up costing you a ton of money.
Steer clear of slick talkers or loan merchants who choose to talk fairly quickly in order to try and trick you. Should the interest rates seem to be too high, be sure you do not sign-up to anything. Under no circumstances trust someone who claims your less-than-perfect credit just isn’t a problem. Last but not least, under no circumstances tell a lie on any credit application, and steer clear of any loan providers who try to advise you otherwise.
Don’t be blind to fees and charges
Make certtain that you find out what all of the mortgage loan service fees and other associated costs will be prior to you signing a home mortgage loan contract. You’ll certainly be expected to pay out settlement costs, possible commission costs along with other service fees.
Lending products with a variable rate of interest should be considered carefully. Because, as the economic climate adjusts, the interest rate of your mortgage can change at the same time and it could set you back a great deal more when it comes to interest charges. This may lead you to be unable to keep up your repayments.
When was the last time you looked at your credit report?
A favorable credit record is essential to obtaining a favourable home loan. Find out what your credit score is. Deal with any errors against your credit report, as well as do your very best to enhance your own credit score. Consolidate all of your personal debt into just one personal loan using the most competitive interest rate you are able to get, not to mention pay it religously on time each and every month.
If need be, clean up your credit history prior to looking for a new home loan. In order to get qualified to apply for any mortgage loan in today’s world you’ll require good credit. Loan providers have to know you’ll pay your debts. Therefore before you decide to submit an application, be sure that your credit rating is nice and clean.
Look beyond the rate of interest
The rate of interest you are able to get for a home loan is very important, however it is not the sole step to take into account. There are numerous additional service fees that could vary from lender to lender, also. Take into account the charges for settlement, the mortgage type being offered, and any points. You ought to get quotes from different financial institutions before you make any final decision.
As previously mentioned, lots of people have no idea of the very first thing in relation to obtaining a mortgage loan. It isn’t too difficult if you happen to grasp the procedure. Keep in mind these helpful hints so you can be geared up whenever you make an application for for a home mortgage.
Defining a mortgage
A person can purchase a property immediately using a specialised form of loan which goes by the name of a mortgage. This bank loan is normally provided by banks and building societies. With the sheer number of mortgages now available, it just makes sense to review your options just before taking one. It would probably be attainable to borrow money in some alternative way to fund the purchasing of a property, but mortgages are the easiest way to do so, and have become the acknowledged standard way.
Usually, getting a home is associated with the thought of having a mortgage loan. It may be confusing and difficult to comprehend the offers you encounter. For these reasons you have to diligently compare mortgages.
Putting it all on the house
By getting a 100% mortgage, you’ll be able to fully finance your need to buy a house without the requirement of giving an agreed down payment amount. This may seem enticing at first, but it is likely that the loan provider will charge you extra in fees and the interest for their assistance, making this kind of mortgage less attractive than it may at first look.
Additionally, when the loan is much the same as the value of the property the fees for Lenders mortgage insurance can be prohibitive.
The mortgage rate of interest is possibly the major element to consider when comparing mortgage loans. The amount derived from the interest rate is an amount you’ll have to pay off aside from what you have loaned. There are two significant available choices – a principal and interest repayment mortgage and an interest only repayment mortgage. This implies that one could either pay both the interest and a portion of the capital, or maybe just pay the interest applied to the lent sum of money. Of course, an interest only mortgage will still request you to pay the capital, however not while you’re still paying for the interest. The mortgage interest rate would be a major aspect to consider when you compare mortgage loans. Interest only mortgages allows you to pay out the principal balance and also the interest in two distinct periods.
A Plethora of choices
A mortgage has lots of various types. The list contains discount mortgages, buy to let mortgages, self-certification mortgages, fixed rate mortgages, capped mortgages, and first time home buyer mortgages. It is not so easy to comprehend most of the various kinds, they can only really be understood by someone who has a great deal of experience with mortgage loans.
The first time client mortgage is certainly aimed at the 1st time buyer. Many loan providers only make it simpler for those who’re in this position to apply for and get them.
You will be able to borrow a reasonably large sum of money by having a home loan. With that in mind, you need to be sure that you’ll be having available great selection that fully suit your your needs and your ability to acquire a loan that you can comfortably pay back. This is attainable if you do a comparison of mortgages meticulously.
Major things to consider
It is very important to check your full options for house loans just before picking one, given that mortgage loans are quite abundant in the market. This is why evaluating mortgage loans very carefully is crucial.
You can efficiently do a comparison of mortgage loans once you get the mortgage rate of interest and any fees as a major consideration. There are many mortgage loan kinds available today like first time home buyer mortgages, low doc mortgages, rent to buy mortgages, discount mortgages, basic rate mortgages, honeymoon mortgages, fixed rate mortgages, and many more.
Hot Off The Press, Courtesy
Of Channel 9 News
Almost one million Aussie households are
staring down a mortgage ‘time bomb’
Almost one million middle-income Australian households are facing a mortgage time bomb as soaring living costs plunge families into repayment stress.
A new analysis by Digital Finance Analytics (DFA) has shown that the number of households currently in mortgage distress has risen by 20 percent in the last six months to 910,000.
At the current rate, more than one million households will be struggling to make repayments on their home loan in 2018.
Primary factors ratcheting up the stress faced by families include stagnant wage growth, living pay cheque to pay cheque and the looming threat of a rise in interest rates.
Martin North, Principal of Digital Finance Analytics, says that the risks of more middle-income families borrowing enormous loans from the banks are rising.
“Risks in the system continue to rise, and while recent strengthening of lending standards will help protect new borrowers, there are many households currently holding loans which would not now be approved,” said North.
“The number of households impacted are economically significant, especially as household debt continues to climb to new record levels. Mortgage lending is still growing at three times income.
“This is not sustainable.”
Broken down by region, NSW had the most households in stress with 238.703, followed by Victoria with 250,259, Queensland with 162,726 and WA with 121,393.
Households are defined as being “stressed” when their net income does not cover ongoing costs, including repayments on their home loans.
Households that have a tight budget but manage to make ends meet are defined as being “mildly stressed”, and those who are unable to make a mortgage repayment within the next 30 days are defined as being “severely stressed”.
Nine Network’s Finance Editor Ross Greenwood said that it’s “pretty obvious” why families are struggling.
“Families are struggling with rising costs. Rising health insurance premiums, rising electricity bills and on top of that, many families have taken on very big mortgages,” said Greenwood.
“Now if their wages aren’t growing fast then quite clearly they are going to struggle.
“Another worrying statistic is that there are now 52,000 households that this organisation has identified that are now 30 days behind on their mortgage repayments, that means technically banks could walk in and close them up.”
I have been in the mortgage brokering industry now for approximately twenty years and I have now seen a whole generation of Australians take out mortgages who have no experience of what a 7-8% interest rate mortgage is. Many of these borrowers insisted on borrowing to their maximum capacity. Although in the last six months banks have been tightening up on what any new borrowers can get loan amount wise, there is still many years of previous borrowers who pretty much were able to borrow almost anything they wanted.
Recently we have seen not only banks but many other commercial enterprises prey on the Australian consumer with increased prices (energy companies being one of the notable ones). Although many borrowers have budgeted diligently there would be very few of them that would have factored in some of the essential services price rises we are seeing.
For many there may not be a solution, however our advice is to drill down on your budget and find every last cent you can find and start paying it onto your mortgage. I would recommend you beg, borrow, and tighten your budget belt to find whatever you can to pay toward your home mortgage in order to escape the mortgage stress that may be headed your way in the not too distant future.
Also, get with your home mortgage broker, because if you have a 4 in front of your home mortgage you are probably paying too much.