Before submitting your home loan application, knowing how the bank will asses your application will give you the best chance of being approved.
The banks or lenders will always asses each application carefully before granting funds. While credit policy may differ between lenders, all lenders follow similar guidelines when assessing loan applications.
1. Your ability to repay your loan
To ensure the applicant’s ability to repay the loan, banks will examine the individual’s monthly income, monthly expenses, wealth, lifestyle and employment history.
They will also check your credit and loan history, including approved and declined loans. All these factors go towards determining your character and will be assessed using your credit file.
2. Security over your loan
This is the collateral you have to offer the lender as security for the loan you’re applying for.
If you’re buying your first home, you may have limited collateral to hold. In this case, the lender will appraise the value of the property you’re wanting to purchase to determine its value and ensure it’s worth the amount you want to borrow.
If you’re looking to buy an investment property, you are able to use your existing property portfolio as collateral.
The type of property you already own as well as its location are both determining factors that are assessed in your loan application.
3. Capacity to repay your loan
Loan serviceability is an important factor in approval; lenders want to know you are able to afford to pay back your loan.
Lenders will look at your income, assets and liabilities, including any rental income you may receive from other investment properties.
Applicants with lower debt to income ratio are more likely to be successful in their loan application.
4. Your deposit
Lastly, lenders will asses your capital – how much will you be bringing into the loan as your deposit? This is referred to as the Loan to Value Ratio (LVR).
If you have less than a 20% deposit, your loan application will be submitted to a mortgage insurer and you may be required to pay Lender’s Mortgage Insurance.
In order to present the best application to the lender and secure your chances of a successful application, you should look to fulfil the list of lender’s requirements and have your application’s supporting documentation ready.
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