Handy guide to obtaining a loan

THERE has never been a more important time for home loan applicants to practise “financial hygiene”, experts say, with some banks “cherry picking their deals” in the high-turnover market.

Budding buyers also need to start the loan process as soon as possible, with approvals taking weeks longer than usual.

“The major banks aren’t playing fair, they’re taking a very long time to turn approvals around,” Money Cat Finance chief executive and mortgage broker Evan Davis said.

“They’ve got a big volume of work. Some are turning away pre-approval work and only focusing on clients who have already bought.

“But don’t be turned away. It’s a good time to shop your lending around.”

Buyer’s advocate Frank Valentic had also seen waits jump from one or two weeks to four.

“Get in sooner rather than later,” the Advantage Property Consulting director advised.

“Banks are asking for proof of expenses, so more documentation. A lot of staff are working from home. And the banks are getting busier, more transactions are coming.”

Nationally, there were 22 per cent more home sales in the first three months of 2021 compared with last year, according to CoreLogic.

So, we turned to the experts for answers to some common loan questions.

Should I use a mortgage broker?

Not surprisingly, Mr Davis’s answer is yes. But he has four compelling reasons.

“First and foremost, convenience,” he said.

“Any good broker will work around you. And we do all the heavy lifting with the application to a lender, so we are your one point of contact.

“Secondly, most brokers have so much more experience and industry knowledge than lenders at a bank.

“Thirdly, those lenders only have one product they can really offer you: the product the bank wants to sell.

“A good mortgage broker will have many lenders on their panel. We’ve got 60, so we can shop around on price and policy.

“But the main benefit is the mortgage broker has to, by law, operate in their customer’s best interests. A bank employee has to operate in the bank’s best interests.”

On top of all this, most brokers would not charge you directly. “We get paid by the lender, basically,” Mr Davis said.

Mr Valentic also advocated using a mortgage broker, noting they should save you “time, money and stress”.

“They can do the shopping around for you, rather than you going to four or five banks,” he said.

How can I become a good loan candidate?

With lenders heightening their scrutiny when assessing applications as a conse

quence of the 2017-19 banking royal commission, and the pandemic, Mr Valentic has a key piece of advice on this.

“Make sure you don’t spend too much in the three months prior,” he said.

“Lenders are going to check all your statements.

“This should also involve steering clear of “the TAB and Crown Casino”.

Mr Valentic said having “as big a deposit as possible” also made you a better loan candidate — and if it exceeded 20 per cent, you would avoid pricey lender’s mortgage insurance.

Being conservative about the sum you borrowed was a good idea too, he said: “Leave yourself a buffer that doesn’t have you mortgaged to the hilt.

That provides a bank with more comfort you’re going to be able to meet repayments if rates go up.”

First-home buyers could further boost their attractiveness to lenders by having their parents go guarantor on the loan.

Mr Davis said staying on top of credit card or personal loan payments was also crucial.

“Pay them on time or early, and in full,” he said.

“The longer you’re in your job generally makes you more attractive to lenders, too. They like a safe bet.”

How do I determine my borrowing capacity?

The easiest way to do this is to visit a mortgage broker, according to Mr Evans.

“Bring your pay slips along, your tax returns, your savings history. A broker will compile all that and give you an idea of your maximum borrowing capacity,” he said.

Your typical expenses — including “groceries, coffees and Uber Eats” — would be factored in.

And Mr Evans said you must be honest or risk a bank knocking you back.

“The old days of telling little white lies on application forms are done,” he said.

Once you received your maximum borrowing capacity, Mr Valentic advised “working backwards from there” to leave yourself with a savings buffer.

“If you can borrow up to $700,000, look at what repayments (at that level) will look like, and then what will $600,000 and $550,000 look like,” he said.

“Do a mock loan before you even buy — make repayments into a separate bank account … to see whether you’re really ready to take on that loan.”

Should I get pre-approval?

Yes, especially in today’s highly competitive market.

Mr Valentic and Mr Evans were firm about this, with the former saying pre-approval allowed you to “bid with confidence at auction” and have “more bargaining power” in negotiations for private sales.

“It’s almost impossible to buy ‘subject to finance’ in this market,” Mr Valentic said.

Mr Evans said applicants should not be turned off by the fact some lenders were turning away pre-approval work during this busy time. Instead, they should “use their broker and find a lender who will do a fullblooded approval in principal”.

What type of loan and lender should I go for?

Mr Evans said he generally favoured variable rates as they provided “more flexibility”.

“But that said, money is crazy cheap at the moment (and) I think we’re going to be in a low interest rate environment for a while,” he said. “So it’s a great time to have a foot in both camps. If you’re going to fix, keep part variable so you can pay off more of the loan and run an offset account.”

He also encouraged would-be borrowers to “look beyond the big four” banks.

Mr Valentic advised against immediately going with your existing bank, noting “there’s no loyalty with banks at the moment”.

And he warned obtaining the lowest interest rate did not necessarily mean you were getting the best deal, with set-up costs, ongoing fees and flexibility of the loan important factors.