Whether you’re refinancing an existing mortgage or buying your new dream home or an investment property, the question we get asked the most is “Will I qualify?”.
The only consistent aspect of the mortgage industry is change. Your mortgage is generally one of the largest expenses in the household, so it’s only natural that it’s under a constant state of scrutiny. This scrutiny is often driven by major market or economic impacts or often the result of an unpopular government trying to win brownie points with the public by focusing on a topic that is close to our hearts as a country of people who LOVE property!
So often there’s little you can do about these changes, except plan. That’s right, plan! We don’t build houses without plans, I’m sure doctors don’t perform surgery without a plan, you certainly wouldn’t retire without a plan. So why don’t we apply the same logic when entering into one of the largest financial commitments a person can make?
Because we’re excited that’s why! We’re excited to buy our dream home, we’re excited to take the next step in our financial future, we’re caught up in taking the same leap we’ve watched our family and friends make, while we were busy with our heads down saving for this moment!
Here are some things to remember when you want to get your mortgage application approved:
- PAY YOUR BILLS ON TIME – Australia is increasingly moving towards a model where part of your success with an application is also determined by your previous behaviour with regards to paying your bills on time. In the American system, not paying bills on time = a higher interest rate. Always pay your bills on time! Not doing so, will effect your CREDIT SCORE, something the majority of banks now include in their assessment process.
- ALLOW YOURSELF PLENTY OF TIME – Shopping for a house before you have your finance application in order is like wearing your underpants on the outside. You’ll get some attention at first, but in the long run, it won’t work out so well for you. You won’t miss out purely by taking the time to prepare. You will miss out if you don’t prepare.
- BE HONEST – We all have skeletons of some kind in the closet. One of my favourite lines with clients is “You tell me EVERYTHING, I’ll decide how we package it and who we go to”. I don’t mean that literally of course, but the underlying message remains the same. Tell me everything or we fail.
- EVERYDAY SPENDING – Do you run a household budget? I’d would estimate that 90% of people I meet, don’t have a household budget. There is a real perception that with a budget comes sacrifice and pain. And depending on what you’re trying to achieve, that may be true. However, if you don’t know it’s broke, how do you fix it? You’re about to go to a bank and attempt to convince them that you are completely across your financial situation and hope they gives you a few hundred thousand dollars… If you don’t have a reasonable grasp on your spending, do you believe the bank will let you slide on that one?
- MINIMIZE/ELIMINATE EXISTING DEBTS – Personal loans, car loans, credit/store cards and leases are some of the things that have the largest effect on your ability to qualify for more. Where you can and where it makes sense to do so, get rid of them ASAP.
- DEPOSIT – Doesn’t always have to be your own savings. You can receive a gift from a family member, you can use bonus payments from work, there are many ways you can address a shortfall in your deposit. Just be aware, that these options often have additional requirements e.g. a statutory declaration for gifted funds from the giftER as an example.
- INCOME – Some of the hardest forms of income to use on an application include casual workers, people being paid in 100% commission, overtime or allowances, short term employment, government benefits. It’s not to say that we can’t find a home for these, just be prepared that you will most likely have LESS banks to choose from and the banks that will consider it, often will apply additional requirements. As an example, for casual workers, the rule of thumb generally is, they want 2-years of history, then will take an average of that 2-years earnings and deduct a further 20% to allow for any variances.
- THE PROPERTY – As grim as it may sound, banks always enter into a mortgage with the view “if this all goes pear shaped, how easy will it be for us to sell this house and recoup our money”. We speak with a lot of people that are chasing a renovator that they can add their own special touch to and hopefully make a decent profit. The downside to this is that a bank takes a very different view to what we might see as a “renovators delight” they see as a rundown shack. You should avoid properties with the following: large powerlines close by, close proximity to cemeteries, properties that are uninhabitable. If it looks rundown or has any features close by that make you go “oh….” There’s a good chance a bank will have the same reaction, only worse and will lend you less money, requiring you to come up with the rest.
- INTEREST RATE ISN’T EVERYTHING – Not always, but generally we find, the lower the interest rate, the harder it is to qualify. So what’s more important to you, interest rate or getting approved? Just because you qualify with one bank for $500k, doesn’t mean it’s the same at every bank. They each have their own policies, rules and preferences and some banks will lend you more, others less. It’s about finding the right fit first, then the lowest cost 2nd. There are many ways to set yourself up for success with a mortgage, lowest rate should only be one of many considerations.
- “I heard Joe Blow got it cheaper than that” – When I bought my first home, I recall arguing with the seller over $5k. I swore I wasn’t going to pay extra, he was just trying to squeeze the last dollar out of me, it wasn’t fair etc. I arrived home one day, blood boiling over this, as I entered I encountered my dad on the back veranda reading the paper. He asked how the negotiation went and when I told him about the $5k, his response was simple “If you like the house and it ticks all of the boxes, pay the bloody money. You will always find someone that did it cheaper, easier, faster, harder, better. In 5-years time, you won’t remember the $5k, but you will remember paying your own house off instead of someone else’s”.
You will generally get to a point in your life where you have an innate understanding of whether your in the ballpark to get a mortgage or not. And if you’ve got that far in life on your own, the rest is fairly easy, with a little planning. It’s been my experience that, if you ignore these things, I would give your application a 50% or less chance at being approved.
So speak to us, your local mortgage brokers! It’s no secret, the bank pays us and if you don’t get approved, we don’t get paid! So we don’t do applications that we don’t believe have the best chance at success! So there’s the recipe, what are you waiting for, call your trusted mortgage experts at Blackbox Finance, servicing Palm Beach, Currumbin, Elanora & Tugun for 5-years.