While lending laws have started to show first signs of relaxing, there’s no doubt that lenders have become more concerned with how borrowers are organising their finances and managing their expenses.
Red marks against your credit history very likely won’t help in securing the bank’s trust when the time comes to lodge your home loan application. As mortgage broker Samantha Cranny at Smartline Personal Mortgage Advisers shares with Yourmortgage.com.au managing editor Sarah Megginson, lenders are looking for financial stability.
“To increase their chances [of a loan approval], borrowers have to show good conduct. So, if they feel they have been a little out with their spending money to reel it in… and really get their credit health check in place,” Cranny explains.
“Understand that the banks will go through those statements and your savings and they will put together their own synopsis of what you’re spending.”
Not every borrower has the same form of employment or lifestyle as the borrower next to them, so the approval process can feel very specific at times. But it all comes down to knowing how you can refine your home loan application and consequently exemplify to a lender that you have complete control over your own cash flow.
In fact, while some lenders will request anywhere only three months’ worth of financial backlog in the form of your bank statements, other lenders can request a full six months.
Although it can be uncomfortable to have to disclose the specifics of your spending, Cranny stresses the importance of doing so and being transparent from the start.
“The lenders will go through your bank statements, your savings statements, your credit card statements, and they will go through it line by line and they will compile how you conduct your living,” Cranny explains.
“So, if you’ve stated in your living expenses that you’ve spent $3,000 a month, and it’s clear you’re spending $6,000 a month, you don’t look great to the bank and they will want to know why.”
Credit cards that have zero balance are also combed in the assessment process because they have a limit attached to them, Cranny says, and essentially, this counts as money that the borrower can access.
In addition to discussing how borrowers can best prepare their documents for home loan approval, Cranny puts the spotlight on how a solution-focused mortgage broker can provide them with a wider exposure to lenders, and in this way, increase their chances of becoming homeowners.
“The beauty of going to a broker is that we’re accredited to a lot more lenders, sometimes 25 to 30 lenders that has exposure to up to 500 products. So, when the market is declining, a lot of these policies tighten up so what might fly today may not fly tomorrow,” Cranny explains.
To find out more about the home loan approval process and the ways in which you can strengthen your application, watch Samantha Cranny’s full interview.