Five things you can do to make your mortgage application a success under the new rules

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If you’re hoping to buy a home soon, you may have been watching the news in recent months with trepidation.

New responsible lending rules that came into force in December, combined with tighter loan-to-value restrictions, have been blamed for turning away growing numbers of potential borrowers.

Bank bosses have estimated that 6% or 7% of loans that would have been approved before December 1 are now turned down.

So what can you do now to ensure you have the best chance of success?

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Pay off short-term debt and reduce your “buy it now, pay later”

This is a big problem for several reasons. Having a lot of expensive consumer debt can cause a bank to worry about how you manage your money – why do you need to rely on it to make purchases?

Second, it’s a problem because the repayments are ongoing, which reduces the amount of disposable income you have to cover the mortgage.

Get rid of this debt as soon as possible.

Brokers even advise you to use your deposit savings to do this, unless it takes you below a benchmark like 20% or 10% of the value of the property you are trying to buy. .

Mortgage consultant John Botlon, who founded Squirrel, says it’s really hard to get a loan with less than 10% right now, unless you can use a product like Squirrel’s Launchpad or the First Home Loan.

But anything between 10% and 20% is treated as a “low deposit” by banks, so it doesn’t matter if your deposit goes from, say, 18% to 17% because you’ve paid off your expensive debt. (or a student loan, which he says can also weigh heavily on a candidate’s income).

Don’t be tempted to have a buy-now-pay-later account, even though it offers an interest-free way to spread out payments. Again, the problem with these is the ongoing nature of refunds.

Bolton says that even if you’re not using your Afterpay account, the lender needs to factor that into your spending.

Show you can afford the amount you need for the mortgage

Glen Mcleod, an adviser at Edge Mortgages, says a big problem with the new system is that the bank can’t believe you’ll cut your expenses to cover a mortgage once you’ve bought a house.

Many potential first-time home buyers report being turned down for what appear to be minor issues.

ALDEN WILLIAMS / Stuff

Many potential first-time home buyers report being turned down for what appear to be minor issues.

If you currently go out three nights a week and spend your wages at the pub because your rent is relatively cheap, they must assume that you will continue to do so.

“If you’re paying rent and you’re paying $700 a week right now, but you’re going on a mortgage with payments at $1,000, where is that extra $300 in your expenses? Do you have any left over each week? You might not know that, so they’re going to ask where is this money coming from? »

If you’re not already saving the difference between your current rents and the level of mortgage payments you’ll have to pay (if there is a difference!), then starting to do so will help.

If you are a low deposit borrower, you will likely have your best chance with a bank you are already with, and if you can maximize your income so that you have as much disposable income as possible in addition to your scheduled repayments. .

Reduce your “fun” expenses (but maybe it’s not as bad as you think)

A potential lender will look at about three months of your bank statements to see how you are doing.

Mcleod says you shouldn’t be too afraid of the occasional frivolous expense, but any regular pattern can become a hassle.

“They look at all of your expenses and if it’s a repeat it definitely comes into play. I had a request from someone today saying ‘can I book a ticket plane, will the bank criticize me for this?” As far as I’m concerned, no it’s an isolated case, you were locked up in Covid, why not you? We tell them about these parts so they understand what to look for in bank statements.

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“If I walk by and see a TAB payment, if it’s $20 and maybe $20 a week, that’s fine. No problem. If it’s $50 one week, $95 the next, $120 then that down this is behavior that shows there is a tendency to gamble which although it is not illegal it is something the banks are aware of This could be for the next six months that you will stay away.

“Buying coffees, dining out, these are all things that, if they happen regularly [it can be a problem]. If you go out every Friday night and spend $200, that’s a regular expense. You may have heard people say “I went for a coffee and bought something at Kmart and got turned down” – the question is, do you do this on a regular basis? »

Don’t try to cheat the bank

It’s better to be upfront and honest about your expenses than to try to hide them, whether that’s by hiding money under your mattress for your trip to the pub or by withholding your emergency credit card from rescue. The bank will ask about your application and still find out these things, brokers say. Withdrawing cash with your groceries will likely only increase the amount you seem to be spending at the supermarket, which can also be a problem.

Check your credit history

A default on your credit history can be bad news now that banks need to be extra confident that you can repay your debt.

A first-time home buyer had her application turned down when the bank discovered two defaults she was unaware of in her partner’s history.

It’s worth checking this upfront so you can identify any potential issues and fix them, if the information on your credit report is incorrect, or provide a good explanation of why it happened and why. this will not be a problem in the future.

And a bonus tip – get tips

When things are a little uncertain, it can be helpful to seek advice from a mortgage adviser. Mcleod said he was dealing with a lot of people right now who wanted advice on where to start.

“It’s never a no, it’s a step again. This allows people to understand what we are looking at as we do the assessment. »

He said an adviser could explain how much someone needed to save, what expenses might be an issue and whether they would need things like family support to get the deal done.

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