It’s one thing to be ready to pay off a mortgage. It’s entirely another to convince lenders that you’re ready to do so, especially in the current environment of tighter lending standards. Here’s how to climb your way through the process.
You may have seen in the news recently that the prudential regulator has been cracking down on banks to tighten their lending standards.
In turn, the banks are putting the squeeze on finance applicants.
Here’s what you need to know to make sure your accounts can pass the test.
Why the tighter lending standards?
Due to the banking royal commission, certain banks are now asking for detailed accounts of your living expenses before approving finance.
They’ve now got to be able to prove to prudential regulator APRA that they’ve performed their due diligence.
No exceptions for the banks, means no exceptions for you.
This has led to some pretty in-depth scrutiny of borrower’s accounts and spending habits: if there’s one transaction out of the ordinary, they may decline the loan.
For example, in one case heard along the grapevine, a couple who said they didn’t have a child bought an item at a baby store and got dragged over the coals by the lender about it after the lender saw the purchase in their account.
So, in a nutshell, you’ll want to make sure you have an account that can show three months worth of clean expenses and savings that match your application.
Here’s how to do so in five steps.
1. Create a budget
First, you need to create a household budget. If you need help, you can use the free Personal Budget Calculator on our website
But remember, it’s one thing to create a household budget, it’s entirely another to stick to it.
For at least three months you need to stick to this budget religiously to show that you can you control your savings. This will set the platform for the steps below.
2. Genuinely save money
If you’ve budgeted correctly, you should be able to put some of your hard earned money away into savings.
This is important, as lenders will often ask you for proof of ‘genuine savings’.
Basically, it’s one of their ways of confirming that you’re committed to being financially responsible with your money.
If your purchasing a property to live in, history of regular rental repayments can be considered as genuine savings.
Other types of genuine savings that lenders consider may be shares or managed funds held for more than 3 months, salary sacrificing, term deposit accounts or equity in an existing property.
3. Don’t miss payments
Once you have your budget set, schedule some direct debits to ensure you pay all your expenses on time. This includes your credit cards, phone bill, internet and so on.
That’s because late payment fees that show up in your account or on your credit file can be a big red flag for lenders.
If direct debit isn’t an option, make sure you set reminders on a calendar – preferably the electronic kind that can alert you to reminders.
If your concerned there may be an issue regarding late payments in the past on your credit file, we can access a copy of your credit file, free of charge, prior to submitting an application.
4. Be ready to explain living expenses
If you’ve followed steps 1-4, then the good news is this should be the easy step.
You’ll be able to succinctly explain and show proof to the lender that you can follow a budget, genuinely save money, make payments on time, and effectively manage debt.
Need a hand?
Negotiating the current lending landscape is tricky. Fortunately, we know what we’re doing and can guide you through it.
We also know that sometimes life throws curve balls at you and if you don’t meet all of the above criteria, or if you’ve already had a loan declined, all is not lost. We work very closely with specialist lenders who offer loans to people who don’t fit standard lending criteria. These are called Non-Conforming loans and are be a great solution for many Australian’s looking for finance.
If you’d like help securing finance, or want some extra pointers on how to meet the tighter lending standards, then get in touch with us today. We’d love to help out.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.