Getting approved for a home loan is difficult. Ask anyone who’s tried it in the past few years.
The government wanted to relax so-called “responsible lending” laws to stimulate the economy and get money flowing when COVID hit, but they didn’t get leniency across the line.
Also by Nicole Pedersen-McKinnon:
When Westpac won the so-called ‘Wagyu and Shiraz’ federal court case, against the business regulator, it confirmed that what you spend before you get a loan could be more than when you get a loan. tighten your belt once you’ve secured a loan.
But the banks still don’t have official guidance on what this means for their approval process.
So instead, apps are pushed left, right, and center.
Indeed, only the savvy – and the “assisted” – get approved for a mortgage.
So, Yahoo finance asked those helping — usually secret mortgage brokers — their insider hacks for a home loan.
Home loan hack 1: Cut your credit card
Rule Changes several years ago means that any credit card limit you have, even if it’s not being used, puts a severe “limit” on what you can borrow. In fact, it excludes enough income from each paycheck to pay it all back in three years.
Mortgage insiders say that can mean it wipes out six or seven times the limit on the actual amount you can borrow…so an unused credit card limit of $10,000 could “squeeze” your loan up to $70,000 .
To get the amount you want, reducing the capacity of your card – or even giving up the credit facility altogether – is often the only option.
Just be aware that the same calculation of three years to clear now applies to your income when applying for a new, or simply larger, card facility. You can never recover a lowered limit.
Home loan hack 2: Reduce your expenses
So, the Wagyu and Shiraz case, just above, theoretically gave lenders the option to be a bit “lax” about reviewing your expenses.
They had administered, what is known in the borrowing industry, the Netflix test and reviewed all of your indulgences and expenses for the past three months.
Now they might instead assume that you’re spending a typical amount using a “measure of household expenses” and add any extras you might have in your life – such as hazard insurance and legal entity fees – into it. more of that.
The three months before applying for a loan are always critical, in any case.
So pull your seatbelt. In case.
The inside word is that only if they find something really serious about your spending – like a gambling habit – will they go back further than three months.
But, just between you and me, several brokers whispered, “Palm cash for pub crawls.”
Home loan hack 3: Find a job
Now, that might sound logical, but I’m specifically targeting people who are either self-employed or hoping to get a loan when they mostly have investment income, perhaps because they’re older.
Employment income is viewed much more favorably.
If you’re self-employed, it may even be worth working for someone else before applying. If it’s a job in the industry you’re already involved in, three months might be enough. Otherwise, closer to six months is probably needed.
And it will have to be permanent part-time at least. If it’s casual, there’s probably no chance unless you’ve been in the job for six months.
Of your business, a lender will want to see your last two years of tax returns.
Likewise, home loan experts say there are specific lenders who will look at investment income when calculating your service capacity and they will usually look at dividend income for the past two years. But you will probably pay a higher interest rate.
And if you have less than 25 years left before retirement, you may find that a lender sets the term of your loan at that number of years. Get ready for it.
Home loan hack 4: Think like a bank manager
All banks add a service cushion of 3 percentage points to the interest rate. This stress tests your income to see if it could extend to, yes, 12 rate hikes.
So while your refunds may seem affordable now, it’s worth analyzing the numbers to see what they would be with a rate 3 percentage points higher than the actual rate.
Any mortgage repayment calculator will show you this.
The borrowing “brake” on the back of the envelope? STOP if the amount of your income that a refund would absorb exceeds one-third of it. Committing more than that is the definition of mortgage stress. Don’t, even if a lender will advance you more.
Home loan hack 5: Love the loan you’re in
Very strange advice, I know.
But the application criteria are so strict right now, and it can be so difficult to pass them, that the only option may be to negotiate a better deal with your existing lender.
And you might be surprised how much you can save if you know both tricks.
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Walk away armed with the best rate – today you can get a quality loan (from what’s called an Authorized Depository Institution) for as low as 1.85%.
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Don’t let on that your financial situation may not see you approved for this. Why would you?
Good luck.
Nicole Pedersen-McKinnon is the author of How to Get a Free Mortgage Like Meavailable at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitterand instagram.
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