Loading ...How to increase the odds of having your mortgage loan approved
We are in the middle of a credit squeeze and it’s resulting in lenders declining a significantly higher number of mortgage loan applications. Here are some tips on increasing your chances of having a loan application approved.
Lenders process a huge volume of loan applications every day and most have introduced credit scoring systems in order to cull the loan applications that are unlikely to meet with approval once they are placed before a credit officer. Unfortunately because these systems are not perfect, some good applications are declined and once a lender declines a loan it’s hard to get them to change their mind. Not only that you end up with another entry on your credit report which further reduces your credit score!
Be consistent with information you provide lenders, especially in regard to your income and your employment and residential history. Bear in mind that almost all mortgage loan applications require a final approval by the Lender’s Mortgage Insurer and most lenders use one of two LMI providers who keep data about all borrowers on file and compare information provided by borrowers in subsequent loan applications over many years. Even if you get past the credit scoring system and the lender’s formal approval process your application can be declined by the Lender’s Insurer for inconsistent information.
For that reason it’s important to keep a record of your employment and residential history (so you provide the same start and end dates for example) and to ‘smooth out’ those histories wherever possible. I’m not suggesting you provide false information to lenders but if for example you’re a young person and you move around a bit, perhaps flatting with friends, I’d recommend you keep your family home as your official place of residence and keep having your mail addressed there. You will receive a higher credit score if you’ve been at one address over the last 2-3 years.
Similarly with employment, if you’ve had a brief fill-in job between employment, it may be better not to submit details of that job, as it increases the number of jobs you’ve held in a certain timeframe. Most importantly, remember that full years of employment will give you a higher credit score. If you’ve been with an employer for 1 year and 11 months, I’d wait a month before you apply for a loan so you can say you’ve been there for 2 years.
Make a full account of your assets on the application form. Your total asset position is considered in light of your age and income to determine (in a very rough way) your spending habits. So for example if you earn $100,000 a year and have been employed for around 5 years, yet have no assets, your credit score will be lower. So include every deposit account no matter how small the balance and provide a full estimate of the replacement value of your home contents, as well as the make and model of any motor vehicle, boat or trailer. It all adds up and it all counts. Apart from deposit accounts and real estate, lender’s usually don’t ask for proof of assets but don’t be too cheeky; if you declare a $200,000 Ferrari you might be asked for a copy of the Registration in your name.
Keep your loans in order. Lenders ask for the latest statement of every loan account you have, including credit cards, and quite often they want the loan statements to cover a 6 months period. One late payment on a loan account can be sufficient to have a loan application declined. For Low Doc loans from mainstream lenders a single late payment is an almost automatic decline. Set up automatic balance sweeps of your credit cards if you can, or at the very least have the minimum required payment made by Direct Debit each month. Administrative error is not a good enough excuse; lenders expect you to keep your financial affairs in order.
Keep your credit report clean. Every time you apply for a loan an entry is made in your credit report and the higher the number of entries on you report, the lower your credit score. This includes those interest free arrangements to buy white goods. They are credit contracts; it’s just that the store has built the cost of the interest into the price of the goods.
Don’t allow a default to be recorded on your credit report. If you are in dispute with a creditor (telcos are the most common source of credit defaults) pay the account and argue later. Once an entry is lodged it’s hard to have it removed and it can affect your creditworthiness for 5 years. By the way you can obtain your credit report at ‘mycreditfile.com.au’.
We don’t know how deep credit scoring systems go into loan applications because the lenders are quite secretive about the process however I suspect they can go very deep and can be cranked up and down to suit lender appetite for new business. At a time like this I’d be inclined to be very thoughtful about the detail provided in any loan application. For example if you are asked for the phone number, fax number and e-mail address of your employer, providing all three rather than just one is probably a good idea, just in case they’re down to that level of detail. Credit people are queer cattle (take it from me; I used to be one)!
As always if you have any questions please don’t hesitate to call or e-mail. We are specialists in providing property finance for investors but we can also assist with general mortgage work.
Bob Coleman, MBA, AFAIM, JP
Phone 1300 573 441
Or e-mail bob@mkpl.biz
International + 61 2 6655 1271
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