Applying for a home loan can be a daunting and extensive process, which makes it all the more frustrating if you get knocked back. So if the banks do say no, where can you go?
The first thing you need to do is find out why your application was rejected, explains Odette Shahnazari, Personal Mortgage Adviser with Smartline.
“If the banks say no to you, you need to find out why. Quite often it is a matter of clarifying some details or providing further information,” she says.
For instance, your credit profile may have revealed an entry that the bank was nervous about.
“An example is an unpaid phone bill that you may not even be aware of, but it appears on your credit reference report. Most lenders will give it consideration, if the debt is repaid and evidence is provided with an explanation letter from the client,” she explains.
“I would highly recommended that you obtain your own credit report before applying for a loan, so you’re aware of these things beforehand. Your mortgage broker should be able to do it for you free of charge.”
Another reason why your loan may have been rejected is if your personal debts were considered to be too high.
“More often than not, it could be as simple as reducing your credit card debt,” Shahnazari says.
High credit card limits can have the impact of significantly reducing your borrowing power: one $5,000 credit limit can reduce your borrowing capacity by up to $25,000. Therefore, if you trim your credit card limits, your loan may be in position to be approved by the bank.
Shahnazari processes dozens of home loan applications each month, so she has picked up a few good habits along the way.
“A good tip is to provide all of the evidence up-front with your application,” she advises. “Nothing could be more frustrating for an assessor than a file that lacks sufficient notes or documents. These files usually end up at the back of the queue, which can result in unnecessary delays or even worse, a ‘decline’ decision.”
If you go through all of the above and still find that the bank says no, you can still turn to a non-bank lender for finance.
“If you don't meet the lending criteria of the banks, there are other bank lenders out there who are keen to have your business, but keep in mind that they usually have higher interest rates and higher exit fees,” Shahnazari adds.
Regardless of whether you apply with a bank or a non-bank lender, a good mortgage broker will be able to guide you through the process and help you prepare a home loan application that addresses these concerns beforehand, giving you the best chance of being approved.
“It’s important that all the boxes are ticked before an application is submitted, so it certainly pays to engage the services of an experienced mortgage advisor who can do all the hard work on your behalf and apply through a lender who is most likely to approve your loan application,” Shahnazari says.
“The good news is that most brokers offer their service free of charge as they get paid by the banks.”
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