There is so much money available to investors and new home buyers that you could buy almost your entire town 10 times per month for years to come. So why are a majority of loan applications denied? Because people are not serious in applying for them. It’s all about the risk and the return for the banks and credit providers.

I can discuss with some authority on how to get your application to go straight through the bank’s system, as I did work as a broker for a period towards the end of the 2003-04 boom. I enjoyed the freedom of discussing with like minded property investors the issues and concerns they had at the time.

I used to write mostly in house loans that were usually Macquarie Bank funded and a few 2nd tier lenders, such as Adelaide Bank, Bluestone, RESI, to name a few.

It was really surprising to find some applicant’s loans would take so much work to get approved, while other applicants’ loans would just fly through with fairly little work. I understand that some people had heaps of equity or cash available and others did not, but this rarely affected this unusual scenario. The most important thing to any application is being able to show good control of your money.

If you earn $75,000 per year and buy fast cars, go on overseas holidays and have nothing more than a box or receipts to show for your year’s hard work, forget using the big banks. On the other hand if you earn $32,000 per year and are able to save just 15% of that over 12 months plus pay your rent on time, you cover your credit card every month and do not over extend yourself on interest free items. The bank officer will see that you care for and control your money. In fact, you have already shown that you are a suitable candidate for a loan as you control your money - not the other way around.

So what do you need to do now to help get loans approved easier in the future?

Even before asking yourself what type of house, unit or other style of property to buy, you need to have great control of your money.

This is really easy:

1. Pay down as much debit as you have outstanding as soon as possible. I will be writing about budgeting very shortly and will show you with real examples on how this is done and way faster than you can imagine.
2. Consistently make a 15% saving every month or salary. You can set this up with the bank easily online and after a few weeks you don’t even notice you are doing this.
3. Pay your bills on time. You setup your bills to be either taken when they are due or just deposit an average of what is due each month so you can be doing other things when your bills are being paid. If you are short one month, you will need to catch up the following month. Let the bank’s computer work out what you owe, spend your time doing what you do best.
4. Try and setup a direct deposit with your landlord or property manager. This will show that you pay on time, when it is due, every time. You do not even have to think for this one.
5. Don’t spend money on stuff! Or you will find in years to come you will have stuff all!
6. Don’t buy things on interest free, if you want things bad enough you should budget for it and pay cash when you have enough saved.
7. Get a copy of your credit report. It’s free and very simple to get. Contact www.baycorpadvantage.com.au and they will send it to you after 14 days. They email it, or you can get it posted to you. If there is anything on here like a default, you need to get in contact with the company who listed it and get it paid. Credit reports are almost as important as your salary information as this is a report on how you treated your previous or current credit provider.
8. Keep records. You have to prove to the banks that you are worthy of a loan and therefore you need to be accountable for what is coming in each month and what is going out. You do not need to get a fancy accounting package; just a diary will do with entries each day of what goes in and out. Back everything up with receipts as you will need to show evidence that you are in control of your money. This is also a great way to see where you are wasting money on stuff!
9. Write a plan and some goals  as to what you want out of working for the next year. It may be to get out of debit. Pay the car or boat loan off. Save enough for a home deposit. It does not need to be a 40 page article just something you can reflect upon when you need more inspiration. Sell unused things on eBay to get your home loan deposit started.

Just a point on letting the banks do most of the work, I do not for one minute mean that you should give them control of your money and bill paying. I am just suggesting that you should make you life easier and get a repayment history of on time payments. You still need to keep the balance in there to make sure you don’t miss a payment, but at the same time you are proving you can meet your financial commitments.

Once you have selected the property type you think you would like to own, you need to get some sort of indication of a preliminary approval. Now this is sometimes nothing like what you have to go through to get your loan but the banks need very little at this stage. They really just need to know what your debt level is, where you derive income from, your available money to go into the property and what the property will be.

One thing I learned from banks and bankers is that they are very conservative and that they lend upon the facts, not on assumptions. They do not like people to have found every loophole in the tax laws to get massive refunds. They like people who have paid their taxes and earn a consistent income from a stable job. The banks will obviously need proof of this income by means of payslips, group certificates and sometimes proof of employment statements from your employer.

Banks like to lend on houses and assets that increase in value over time. They also lend on consumables such as cars, boats, motorbikes with credit cards and personal loans. When you go into the banks you will need to show what you owe and how often you repay the debt.

The interest rates applicable to houses are much lower, as the risk in their eyes is much lower. Conversely the risk for the banks associated with car, boat and consumable type lending is that the asset or security for the loan will depreciate over the life of the loan. That is one of the reasons why we see what I call a consumable type of loan at 12% plus.

When thinking about loans and lending, if you think about it from the banks point of view, you are hardly going to lend money yourself to someone who wants $25,000 for a new car when they have no real reason why the car they drive now is doing the same job. While all day long, if you can see an organized investor asks you for a $25,000 unsecured loan because he is short on a deposit for a property that he plans to hold for a few years, you know your money will be secure and actually working for you in the event of the investor going bad.

On the subject of credit cards, banks take these into consideration even thought you may have a zero balance. Some of the banks add $12.50 for every dollar you have available on your credit card. This has seen so many people denied home loans. What you should do is to drop the credit limit down to $500 for the time of the application and to bring it up to your desired level after you settle on your purchase.

The banks do not like lending to someone who cannot prove that their credit card or personal loan was paid on time. Think of this like a training ground for your mortgage. I believe this really is more serious than you may think.

I know people really have a need to access credit cards for various reasons however why not get a Visa debit card or a low rate Master Card that you can clear at the end of month with cash.

Everything is taken into account, such as living expenses, and they usually allow 2% above the actual interest rate/repayments to get an idea of your ability to cover the mortgage when rates rise or when you may come into difficult times.

Using these numbers, the banks are able to ascertain what level of loan you will be suitable for and how it may suit your needs. It may not be what you want and you will need to look further than just take the first finance that is offered, be prepared to ask questions about fees and charges. Find reviews on the loans at various websites and ask other brokers and bankers what they think of your situation. Ring the bank that has provided the finance offer and anonymously ask questions about the facility.

Just remember, if you plan to find houses that you want to buy, either find someone who can provide you cash for them, or follow some easy rules to getting the money from the banks.

Trust me, the first one is the hardest to overcome, but once you show that you think about things like a business; you will be treated like a business and find the money will come easier than before. I have had bankers ring and ask when the next loan will be needed, so it works!

So in summary:

1. Write a plan of what you want out of your life this year.
2. Pay down debt fast and move on to saving what you were paying in repayments.
3. Find out what you can borrow and start looking at property in that price range.
4. Keep your salary receipts, tax returns and other income proof on file.
5. Get your employer to give you a certificate of employment to show that you have employment.
6. Stop spending money on consumables like Pay TV, magazines and stuff.
7. Save your spare change at the end of the week.
8. Only buy things you need with cash. Do not fall for the interest free trap. If buying a new car etc., buy it newly second hand, they come 1/3rd cheaper usually.

The future of this blog will be to review loans and other products offered from the banks and the fees and charges related to each bank’s products.

Don Christie

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