Times are changing…
Did you know that just 18 months ago, 95% all refinance applications were being approved…
Now… 50% of all refinance applications are being declined.
This is a scary stat, considering the majority of these applicants are every day Aussies. So why are half of all home loan applications being lodged directly to the banks being declined?
- People are simply applying for finance through the wrong bank:
This is without a doubt the number one reason for this horrific stat.
Every bank has a different credit policy and a different list of documents you need to supply when applying for a loan. This effectively means that not all borrowers are going to fit every bank.
Let me tell you a story.
Just this week, we had a couple of first home buyers who had applied twice through 2 different banks to buy their first home. Each application was lodged exactly the same. They were given 2 different reasons for their application being declined. The first bank told them they couldn’t afford it, the second bank wasn’t happy with their deposit, despite them having 10%. When they came to us, they were battered and bruised – defeated. They thought they were finished and their dream of home ownership was over. Without altering one single detail on their application, we got them approved with a cracking interest rate. They didn’t need a miracle, they just needed to know where to lodge their application.
- Poor credit rating:
No one is ever going to care more about your credit rating than you do. Comprehensive credit scoring came in effective July 2018..
This effectively means that the banks will have a lot more information available on you when deciding whether they want to lend to you. I want to share a few points that will help you protect your credit rating.
- Get a copy of your current credit report so you know exactly where you stand
- Check you credit report regularly – a minimum of every 12 months
- Lower any unutilised credit card limits
- Payoff loans or credit card debt where possible OR consider consolidating into one single loan
- Pay bills and make credit and loan repayments on time
- If you see trouble on the horizon, contact your bank before you fall behind in your repayments
Remember the comprehensive credit reporting system is largely seen as a positive step for consumers. The old credit report only showed negative things like number of credit enquiries, defaults or bankruptcy. Now it records the positives if you make your repayments on time. In the future this will help you negotiate a better deal with your bank.
- Bad spending habits
If you’ve applied for a loan lately, did it feel like the bank went to town looking at what you spend your money on?
I can tell you they definitely did.
Today, every single bank requires a breakdown of what you spend your money on each and every month over at least 13 different categories.
From food to utility bills, telephone, medical, child care, education, fuel, transport and entertainment, they want to know it all. In fact some banks go as far to check your transaction accounts line by line for up to 3 months leading up to your application.
We’ve had some banks question how much an applicant spent at the hairdresser, to making moral judgements on other applicants who have put a small wagers on the Melbourne cup saying he had a gambling problem. Not all banks are like this, so it’s important to know which banks to avoid. And that’s where financial advocate such as a mortgage broker can really add value.
The best advice I can give you is to curb your spending at least 3 months before you think of applying for a home loan.
This applies regardless of whether you’re a first home buyer, a sophisticated investor or simply looking to refinance your current home loan to a better deal. For more information and help with getting your home loan application approved, contact MC Mortgage Solutions today.
