A quarter of all mortgage applications are declined. Here are some tips to ensure that yours is not among them and, if it is, they’ll show you how to become more attractive to the credit analysts who have power over your loan.
One of the key reasons a bank will reject your loan application is if it decides you don’t earn enough to repay the loan.
The following suggestions may help you overcome this serviceability problem
Shop around. Every lender has its own serviceability calculator by which it qualifies borrowers. Some lenders assess serviceability at a
lower interest rate than others consequently income
which may be inadequate to one, could be acceptable to
another. Your broker has access to all the lenders’
calculators.
Boost your income by including “add backs”. This is money available to you, but which you do not receive in your pay packet such as salary sacrificed super. Company provided vehicles can also be added to your salary. If you are self employed you can also add
back such things as depreciation and some interest
payments.
Take an interest only loan. This can save between $200 and $300 a month in repayments compared with
principal and interest loans. An extra $300 a month
can dramatically increase your serviceability score.
Reduce your credit card limits. Lenders determine how much debt you have by assuming your credit cards
are drawn to their limits.
Cutting your credit card limits in half reduces the
debt by half.
Consolidate existing debts to reduce repayments
Lodge a cash deposit to cover 1 year’s interest
Take a honeymoon rate. The low initial rate can improve your serviceability score.
Show the purchase or sale of real estate assets as income, not capital gains. Talk to your accountant about this one.
Include expected rental returns and negative gearing benefits as income. Some lenders take negative
gearing benefits into account, others do not.
Find a lender who does. Your broker will know.
Add value to existing assets to increase the security value
Use shared equity. Get parents to help out, or use one of the new products available.
Try a lo doc loan. These are good if you lack up to date financial records. But never inflate your
earnings beyond reality. You could find yourself the
subject of fraud investigations. The tax office may
also decide to audit your affairs if your loan
application suggests you earn more than you have
declared.
