Over the past year, as a response to the royal commission and government regulations, we’ve seen the major lenders tighten their lending criteria due to a decreased risk appetite. This meant that many borrowers who would have easily obtained finance before were suddenly finding their applications rejected by the major banks,it is more important than ever to enlist the support of a home loan expert at the earliest possible convenience.
Lenders use a variety of criteria including your income, deposit, and the sort of place you are buying, to decide if you are eligible for a home loan.
As a guide, banks no longer rely on benchmark estimates of household expenses as they once did. Instead, these days a lender is likely to ask for detailed information about the actual living expenses you pay to be sure you can comfortably manage home loan repayments.
There has been a shift towards increased scrutiny by lenders to ‘deep dive’ into the ability of borrowers to repay their loans, as regulators have expressed concern that lenders should look not only at the ability to service the loan but cultivate an expectation that the debt will ultimately be repaid in full and to more thoroughly stress-test this ability.Expenses such as multiple mobile phones, data usage, Netflix, Spotify, takeaway and home-delivered meals, overseas holidays and rising costs of childcare and private education all add up – and wage rises have been minimal
Due to this increased burden on banks to get it right when assessing applications, many lenders are asking for extra information, which can also affect application processing times.
Your credit score matters too. A new system of credit reporting, in place since 1 July 2018, means lenders can see what type of credit accounts you have, your credit limit and whether you have been paying loans back on time. Yet more than six out of ten Australians aren’t aware that lenders are now sharing more of their personal financial data.
The upshot of all this is that it can be easy to underestimate exactly how much detail you need to provide a lender. Even more confusing, lenders often don’t make their loan criteria public so it can be hard to know what steps you can take to boost the likelihood of having your loan approved.
It’s really important that they get a full picture of your financial situation, so you should make sure to disclose all debts and liabilities and provide proof of income and expenditure, like personal or business bank statements.
If you want a copy of a banks application checklist let us know and we can send you a copy. Click here.