Investment tip: How to be ‘99.9% sure’ that a home loan application gets approved

With the RBA cutting rates, APRA finalising the easement of rules for assessing loan serviceability and the government passing cuts to personal income tax rates, Australians who have seen their borrowing capacity reduced are expected to recover within the next four to six months, ultimately being able to make their way back into the property market.

“Moving forward, we're going to start to see a new norm. We're going to start to see some common sense coming back into lending, which is something that I really welcome,” Ms Schulze highlighted.

However, the continued crackdown on living expenses for mortgage applications may keep the credit conditions tighter for some investors and home buyers, she said.

Moving forward, prospective property buyers are advised to continue implementing smart financial management in order to be more attractive to a wider set of lenders.

The mortgage broker explained: “It's a really fine line between how you manage things. Ultimately, the bank wants to know how much you're spending and what you're spending it on. They feel more comfortable when they can see what you're spending it on.”

“We had a situation with a customer who was withdrawing a few hundred dollars each Friday or Saturday night at an ATM machine located near a hotel. So, the lender decided that that person was a gambler. Obviously, that's a big assumption but that’s an example of how they tend to err on the side of caution.”

Moreover, Ms Schulze also encouraged prospective buyers to get a good mortgage broker to ‘fight your fight for you’.

“It's quite logical that that money is being used for other purposes than the lenders determined—that's when you need a really good mortgage broker fighting your fight for you and telling your story… The way that lending is now, the money that you spend can really bite you,” according to her.

Spending habits

Ms Schulze advised investors and homebuyers alike to reassess their spending habits and make necessary changes in order to make themselves more attractive to lenders.

At the end of the day, good money management remains one of the most organic and effective ways to get through the scrutiny on living expenses as part of home loan applications.

“It is good money management to try and cut back on your spending and save more, invest more. I strongly encourage better behaviors in people, as in making sure that you're not spending excessively, because people that are able to spend less and save more will definitely benefit from higher borrowing capacity,” the mortgage broker said.

While all lenders take it upon themselves to scrutinise the living expenses of home loan applicants, there remain differences in the way they evaluate the applications.

For instance, where some lenders will ask to see bank statements and proceed to pull apart every item line by line, others would be a bit more forgiving.

“Your broker will know that,” Ms Schulze highlighted.

“The more that you're borrowing or the more debt you're taking compared to the value of the property, that's obviously a higher risk for the bank, so the more they're going to scrutinize the application.”

Credit score

As a mortgage broker, Ms Schulze makes sure that his clients don’t submit a loan application unless they are ‘99.9%’ sure’ that it will be approved by the lender.

Before even deciding on a lender, she, together with her clients, assess their living expenses in order to determine potential problems that they may encounter moving forward.

“We need to try and identify what will the banks pick up on? What will the problems potentially be, then find the right lender that's going to ensure that that application goes through as smoothly as possible.”

“You need to find a broker that is actually asking you all those questions and pulling your living expenses to pieces before you actually even choose the lender,” Ms Schulze said.

A good mortgage broker will ensure that a prospective buyer maintain a good credit rating by minimising the need to make multiple loan applications.

“It should be made clear that the more times you apply for credit, the more red flags there would be about whether or not you’re credit-worthy. That's really bad for your credit rating.”

“An application should not be submitted with lender unless you're 99.9% sure it's going to get approved. A good mortgage broker will actually be able to determine whether that lines going to get approved before they submit it,” according to her

“We wouldn't ever submit unless we were 99.9% confident that it was going to get approved because you just can't take that risk with a person's credit score… The credit score hangs around for too long

To further ensure a smooth-sailing loan application, Ms Schulze advised prospective buyers to get pre-approvals, but avoid shopping around for them either.

Instead of getting pre-approved with three or four lenders, she recommended settling with just one pre-approval with the bank that they are most likely to go with.

“Once you actually find the property, then you can review and decide if that bank that you got the pre-approval with is still the best option for you or if you should you get another lender. But definitely, you don't need multiple pre-approvals.”

“Make sure that you are careful with the application forms you sign and how many applications are submitted under your name because it does impact your credit score. Credit score is a hard thing to fix once it's broken,” Ms Schulze concluded.

Tune in to Marissa Schulze's episode on The Smart Property Investment Show to find out how to maximise wealth-creation opportunities in the property market in light of the changing credit environment.