Why Using a Mortgage Broker Can Save You These 8 Loan Application Mistakes
Loan applications can be approved or declined based on these 8 credit checks. If you are thinking about applying for a home loan use these solutions to ensure your gets loan approved.
With the recent credit tightening that is happening Globally, I estimate that more home loan applications are being initially declined than are approved. Today more than ever it pays to use a mortgage broker or introducer to help you complete your loan loan application to achieve a loan approval by getting it right first time.
1. There are too many credit enquiry notations on your credit file.
Lenders don’t like you knowing all the facts about their loans till you are committed to the loan, and they hate doing work for nothing. This is not confluent with a home buyers needs who want to find out all about different loan offers before committing to the best one he or she can find. The problem hits the fan when the home loan seeker racks up too many hits on their credit file, and alarm bells start ringing at all the lenders. Suddenly no-one wants your business, and you don’t know why! The result can be you get your application declined from all lenders! Its a little known fact that many large lenders will do credit checks right along the loan enquiry cycle, and three enquiries can give you 11 or more hits on your credit report. That is a deal breaker for many lenders. No loan, no home!
Loan Application Tip: Don’t sign [or give verbal approval] to any lender to access your credit file, till you have decided which lender you will be applying with. Get your Mortgage Broker to give you the information you seek about the home loans you are interested in, and apply for the best loan you are eligible for after he or she has properly qualified your needs.
2. Your home loan submission is poorly written.
Any innocent or deliberate errors or omissions in answering questions about your credit history and your partners, can be viewed as suspicious or even fraudulent by the lender or Mortgage Insurer. Most people don’t know that what you don’t say [omissions], can at law be taken as a misrepresentation of the facts.
Loan Application Tip: Have your Mortgage Broker get your credit report for all parties to the loan before you submit your loan application. Ensure that your Mortgage Broker writes a synopsis to cover your mortgage application, explaining why the loan should proceed and ironing out any wrinkles there may be.
This extra work on the part of your Mortgage Broker can get your loan application over the line, especially where your broker is a trusted party in the home loan process with a lenders back office team.
3. Your proposed home is appraised as less than the purchase price agreed.
When a property value is appraised by the lender’s valuers as less than the purchase price, you have a problem.
Because banks only lend on Loan to Value ratios. For instance let us say that your $400,000 home is valued at $360,000. 10% deposit is 40,000 and costs are say $8,000. Yes, you have the $48,000 required. But the bank will only lend on 90% of $360,000 [the appraised value, or $330,000. With your $40,000 deposit that makes a total of $370,000 and you are $30,000 short.
Loan Application Tip: A Mortgage Broker will give you the options you need to try to resolve this, including re-negotiating the price down with the sellers agent, getting the lenders to have the valuers re-appraise, or asking the lender to appoint a new valuer [at your cost].
Another solution may be to get a new lender who has a valuer that may be more appreciative of the value of your proposed home. Finally, you may have to find another home that values better.
4. Your Lender says you have insufficient savings, deposit or income.
Down payments and income requirements and payment capacity can vary between lenders.Also, the deposit is not all the money you need to complete a home settlement. You will have conveyance lawyer costs, property tax and other costs that might include mortgage insurance, property and mortgage stamp duty.
Loan Application Tip: Ensure that you have the funds for your costs, in addition to your down payment. Your mortgage Broker can help you with all of this.
AND/OR, find a mortgage lender who has less home loan deposit requirements, or who pays your mortgage insurance for you, OR find a lender that requires no mortgage insurance as they carry that themselves.
5. You have changed jobs, or employment status recently.
Many residential mortgage lenders, [or their mortgage insurers] view changing jobs in high unemployment times as a sign of instability that may lead to you defaulting on the loan.
The other problem is that if you are on probation for 3 to 6 months, your income cannot be assessed as proof of income till the probation period has lapsed.
Loan Application Tip: Your Mortgage Broker may find a lender who calculates your repayment ability in a more favourable way, or a lender that will take a letter from your employer that your job is secure beyond probation, and then get that letter from your employer.
If that is not possible your Mortgage Broker will find a sub-prime or low doc lender to approve your loan for you.
6. You have no savings history or irregular savings patterns.
Banks like to see stable incomes and regular savings for at least 6 months prior to the loan application. This shows you can plan for buying a home. They want to see predictable inputs and outputs, as this has proven to be valuable in having less repayment pain down the line.
That can be good for the borrower and the lender.
Many banks do not like ‘unsaved deposits’ or irregular savings from windfalls and the like. If you are self employed or have seasonal ups and downs, that can be a problem.
Loan Application Tip: Your Mortgage Broker will source your loan from lenders that allow unsaved deposits, gift deposits and parent help with collateral, and parent joint ownership options, including shared equity mortgage options.
Or your broker may use lenders that specialise in small business owners and the self employed if that is your situation.
7. You or your partner have a bad credit rating or history.
You need to run a credit check to find out your credit rating and credit score before you apply for a home loan, not be told by the lender that your loan application has been declined due to a poor credit score.
Loan Application Tip: If you or your partner have a poor credit history your Mortgage Broker will have already performed a credit check, and may use a nonconforming lender, that lends to borrowers with past credit issues, usually at a higher interest rate, at least for the first one to three years. Some non conforming loans are good deals!
8. You have chosen the wrong lender, and your property is undesirable in the eyes of this Mortgage Lender.
We have talked about a poor home appraisal coming back, and the home being under valuation. That is unlikely to happen in the Capital cities, but very likely in areas that are economically depressed or that are losing populations.
Lenders also have policies on the type of property they require to be pledged as mortgage security. Problems can occur with unacceptable postcodes, residential property deemed rural, rural property over 5 acres, 10 acres or 25 acres, and small purpose built apartments, such as dual keyed units:[Two tiny units for single tenants, that are joined, but have two entrances].
Loan Application Tip: Residential mortgage loans cannot be used for working farms for instance. The smaller acreages would not be viable as a working farm, and therefore may be considered as “residential rural”.
Also ‘dual key apartments’, and “ultra low area” housing units may also be unacceptable to your lender. The central policy theme in rejecting these types of security is that the property resale may take longer than the specified time to resale [usually 3 months], should the lender need to exercise a mortgagee in possession sale.
In these cases your Mortgage Broker will assist you to find niche lenders that are comfortable with these types of security, or you may need to find a property that is more in demand that the type you have selected.
Summary on avoiding common loan application mistakes to get your home loan approved.
Mortgage Brokerage is normally a fee free service to the borrower, and using a Mortgage Broker to help you get your home loan approved quicker and easier, by saving you from making these eight common loan application mistakes when applying for a mortgage loan. Having your loan application declined may be overcome, but why deal with the stress and bother when a Mortgage Professional can take care of everything for you right in the first instance?
Article Author:
Rick Adlam has been helping his clients as a Mortgage Broker since 1996 with Equity Home Loans, and online since 1999 when he started Mr Mortgage. When you want to get the best mortgage at the lowest interest rates possible for your situation, we encourage you to talk to your local Mortgage Broker today, or get more advice at Mr Mortgage for your home finance, loan consolidation, or mortgage refinance for Mortgage Broker advice now.
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