4 Ways to Make Sure Your Loan Application is Successful

In today’s slow property market it has become quite apparent that the banks are not as keen to lend money as they once were. For anybody trying to purchase a property or refinance an existing loan it has become a lot harder to get their loan application approved.

If you are thinking about buying a house or refinancing an existing loan or consolidating some debt it is very important that you are aware of the bank’s current lending policies before speaking to your broker. To ensure that your loan application is approved here are 4 handy hints to be aware of before lodging an application.

1. Understand the new responsible lending rules

On 1 January 2011 new Federal consumer protection laws came into effect. These laws have been given the generic title of “responsible lending”.  Basically, these laws mandate that a lender cannot enter into a mortgage contract with a customer that could be deemed “unsuitable” for the customers’ actual requirements. This means banks have become more cautious about who they lend to and therefore require more information regarding current and future circumstances of prospective clients .
Your broker will able to assist you through this maze but if you know of anything that may impact on your ability to repay a loan now and in the future make sure you discuss it with your broker prior to lodging the application.

2. Ensure good conduct on all existing loans and credit cards

Banks have recently tightened rules regarding the credit worthiness of new clients. To be able to qualify for finance not only must you have a clean credit history but you must also be able to show good conduct on any existing credit facilities. This means no late payment fees or exceeding credit limits on credit cards and no late or missed payments on personal loans and mortgages.

Make sure before applying for a loan that there have been no credit issues on any of your existing facilities for the previous 3 months.

3. Current valuations

If you are looking to refinance or consolidate some debt then the current state of the property market will impact on your application. It is important to understand that housing values have dropped some 10 – 15% since 2007. This means that any current valuation carried out on your property will be lower than it would have been 2-3 years ago.

This can have consequences if you are accessing equity in your property for such things as debt consolidation, renovations and purchasing shares. A lower valuation will reduce the amount of equity available for lending purposes. The way around this is to have a good knowledge of local property prices before talking to your broker so any figure for the value of your property put in an application will be conservative.

4. Low docs
One of the consequences of the new responsible lending rules is that it has caused a massive reduction in the number of low doc products that are available. This will mean that if you are self employed it may not be possible for you to access finance through a low doc loan.

If you are self employed and wish to apply for finance it may be necessary to make sure that you have your last 2 years tax returns lodged and an assessment sent to you by the tax office before making an application

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