One of the most common types of questions I get asked by first time borrowers is, how do banks assess loan applications?
In order to decide whether or not to provide you with a loan, the bank / lenders will generally assess you against five qualities.
- Your ability to repay the loan. To establish your capacity the lender will look at your employment history and salary to evaluate whether you have enough cash coming in reliably to pay the loan over time.
- How much cash you have up front. Assessing your ability to put down a percentage of the value of the property being purchased up front is standard. The percentage varies though, and some specialist lenders may approve a five per cent deposit.
- The property valuation. Since the property is used as collateral if you are unable to repay the loan, the lender will value the property. Based on the report, the lender will decide whether the property is worth the loan being approved.
- Your financial history. Your credit rating, expenses and debts will help the lender assess your reliability as a borrower and whether you are worth the risk.
- Market conditions. Economic circumstances in the market can influence what interest rate you have access to and whether you need to provide extra security. They can also influence the repayment schedule.
If you approach a bank / lender direct, they can only offer you their own banks product. You should shop around and find a licensed Credit Adviser / Mortgage Broker that has access to many lenders and can shop around for you.
Their job is to match borrowers to the right loan products and they can negotiate a very competitive rates on your behalf.
These days half of borrowers today turn to mortgage brokers when it comes to finding a home loan.
If you require any assistance in getting a home loan, please contact me.