*This article first appeared in the May 2019 Midland Express.
The last year has brought some changes to the home loan landscape. A lot of this has been driven by governments, regulators, and banks, with decisions made at boardroom tables.
These changes have been brought in to make sure our financial system remains unquestionably strong, however, there have been unintended consequences.
A frustrating consequence of this is that many would be borrowers are being rejected for a home loan.
There are a number of things you can do when the bank declines your loan application, so you can put yourself in the best possible position for an approval.
Keep in mind that not all lenders are the same. While one (or more) banks might say no, it isn’t an indicator that others will be the same. Lenders who are not banks – or 2nd tier lenders-often distribute their loan offering via a mortgage broker which means the shopping and qualifying is done for you.
Get your debt in check
Car loans with high monthly payments, credit cards or even short-term loans have a considerable impact on your monthly outgoings. Lenders factors this in when determining whether you have the capacity to not default on your mortgage repayment. Consider consolidation of your debts into a longer-term mortgage loan so as to reduce your monthly outgoing payment amounts and possibly even open up to borrowing more.
Check in on your spending
Your discretionary spending will be a factor in your loan application. Lenders will ask you to estimate your living expenses. They will then take the higher part of the Household Expenditure Method (HEM) of your declared expenses.
A way to support your application is to adopt a money management system several months (6 months is best) before. By breaking down your expense items into essential and discretionary spending, you are able to identify significant savings with your discretionary spending.
If you have cut down on your spending significantly, it will greatly improve your chances of getting a loan because as part of the lending process, the banks will look into your transactional banking and credit card spending to see what you’re spending your money on.
Missing out on a loan doesn’t mean you wont get one. Understanding the new system will support you better.