How to get a lender to say yes!
If you’re thinking about applying for a home loan, it’s important to gain an understanding of what the banks and lenders look for in the approval process.
The lender will assess your financial position and ability to service the loan, and based on the level of risk that you impose to them, will make a decision on how much or how little they are prepared to lend you.
Let’s look at some of the important key measures used by lenders to help assess your risk.
Your current income will be used to determine the amount of money you can borrow. Earning a higher income could suggest that you are able to better service your home loan.
But it’s not just about what you earn; the lender will also look at your employment history and tenure. In addition, they will assess your employment status (ie. full-time, part-time, casual, permanent) to better understand your position.
In the case of self-employed applicants, the process may require more work and further lender scrutiny as the risk is usually higher.
Your credit history gives the lender an indication of how you conduct your debts. Having a clean credit history can increase your chances of borrowing a higher amount because it demonstrates that you are a responsible borrower.
For a small fee, you can request a copy of your credit file to ensure there isn’t a black mark against your name. The last thing you want is to be knocked-back by your lender because of a telco default you incurred a few years ago.
In New Zealand, you can obtain your credit report from Centrix, or Equifax.
The larger amount you have for a deposit, the less risk the lender is taking when lending to you; the more you have saved for a deposit, the higher your eligibility for a home loan will be.
Having regular and consistent deposits made into your bank account will show the lender your ability to save despite having other current expenses.
Responsible Lending Code
The lender is required to meet the responsible lending code and, by law, needs to ask the applicant a number of questions before giving credit.
Whilst the lender assesses risk, the Responsible Lending Code helps to ensure that applicants aren’t having loans approved which they cannot afford to pay.
Having debts can also determine your borrowing eligibility. If you have any outstanding debts such as credit cards or personal loans, it would be beneficial to have them paid off before applying for a home loan. If you have multiple debts, combining them into one could also help to reduce your repayments, which will look more favourable to the lender.
The lender will assess how much money you have left over [after paying your debts] and determine whether you will still be able to afford paying a mortgage.
A mortgage adviser plays a key role when you’re looking for home loan approval. You can speak to them about the best way to position yourself to maximise your chances of having your home loan approved.
If you’re looking to roll your debts into one, a mortgage adviser can talk to you about your options when it comes to a consolidation loan. This can not only reduce your monthly repayments but can also get you a lower interest rate.