It is important to remember each lending institution has their own very specific set of rules around who can and can’t get a loan. Having a loan declined is never easy, it can be disappointing and frustrating. Sometimes a loan application just can’t be approved if it doesn’t fit the lenders criteria. It’s all about knowing the ins and outs of lending policies, and how to apply that to a particular scenario, as the lender results can differ dramatically. The same application can be approved by one lender and yet declined by another. There are many factors that can contribute to a decline and these need to be addressed and redirected to the right lender. Avoid the temptation to keep applying through other lenders as multiple enquires can affect your credit rating and give lenders another reason to decline, compounding the issue. Knowing what lenders and their insurers are looking for before you apply is crucial to the success of any application.
Adverse Credit
An adverse mark on your credit report can be the result of failing to pay a financial commitment. Even a small default from a phone bill 4 years ago can mean the difference between getting your loan approved or declined. Once listed, a default will stay on your credit file until it has been paid. A default will stay on your credit file for 5 years and bankruptcy will stay on your file for 7 years. Lenders vary greatly in their tolerance for defaults in such ways as; if they are accepted, the status of the default, the amount of the default and the time frame since the default was lodged or paid. We can help match you with a lender that will accommodate your specific situation – though only if we know about it! Excessive credit enquiries are also considered adverse. Generally any more than 7 credit enquiries over a 12 month period may be flagged as adverse credit by a lender. Too many recent loan enquiries on your credit file can make a lender nervous, as they may think you have been declined by other lenders and that you are not telling them the whole story on your application. Avoid dealing with multiple banks or brokers at the same time, this will only result in more credit enquires and make the situation worse. If you are stuck, tell us about it, we can have a look at your situation and provide advice without adding any more credit enquiries! If you have had a loan declined due to a suspected credit issue, we strongly recommend you obtain your credit file before applying with another lender. This can help identify the issue and with a chance to resolve it before reapplying. You can obtain a copy of your credit file for free at http://www.mycreditfile.com.au/ (the credit provider for most lenders).
Credit Scoring
Many lenders use a credit score system to assess loan applications. A formula takes into account every aspect of an application to automatically assess your credit worthiness. Lenders do not disclose the credit scoring formula to prevent applications being manipulated to pass. Factors that can have an impact on your scoring are adverse credit history, multiple address changes, no previous borrowings and low asset to liabilities ratio for age. The overall results could cause your application to fail the automated scoring system, meaning your loan will be declined before your application has even been assessed. With some lenders, once an application fails credit scoring, there is no room to appeal the decision. Fortunately we also have lenders that do not use credit scoring and who individually assess applications on their own merit, so we can work with you to help find the right lender to get your loan approved and not declined.
Loan conduct
How you manage your existing liabilities can sometimes have an impact when you apply for credit. This is especially true when you are applying for a refinance or consolidating debt. Lenders place a high value on the way you handle your financial commitments. If you’re not meeting your current loan repayments, it does not give the lender confidence that you will be able to repay the new loan. Generally, lenders will request 6 months of statements for loans and 3 months of statements for credit cards, to check up on your conduct. This can be challenging if you are in a situation where you are struggling to meet multiple repayments, and need to consolidate your debt to get on top of things. It is crucial to be upfront about any misconduct and provide an explanation. We can help communicate your position to the lender and help alleviate their concerns. Some of our lenders will make exceptions depending on your circumstances. Depending on your situation, we also have lenders with a high tolerance for missed or late payments, who will still accept poorly conducted debts. Whatever your circumstances, it is never hopeless, we can help you to find the right lender.
Genuine savings
If you are looking to purchase a property with a high loan to value ratio (generally above 80%), most lenders require you to have genuine savings. The ratio can differ depending on if the purchase property is for owner occupied or investment purpose. Ratios and requirements also vary greatly between lenders. The standard requirement is at least 5% of the purchase price saved and held over a 3 month period in the borrower’s name, evidence must be provided. If you do not fit this criteria, don’t stress! Some of our lenders can consider gifts, inheritance, liquidated assets or even regular rent payments as genuine savings. There are also some lenders who are able to waive the genuine savings requirement depending on your circumstances or for an additional cost. We can help find a lender that will suit your specific circumstances.
Properties as security
This can be difficult. Whether or not a property is acceptable as a security is often beyond your control. Lenders have different views on what is acceptable and this may not be identified until the lender does a valuation. Valuation reports can reveal adverse comments about the property’s resale ability, general condition and also the current market value based on comparable sales. You may have a property that is a little outside lender guidelines and is consequently unacceptable by many lenders. This can often include units under 40m2, high rise apartments, serviced apartments and properties in remote locations or mining towns. Perhaps you have a property that has been valued lower than expected due to unfortunate market conditions, location, state of repair or for other reasons. This can affect the loan to value ratio (LVR) which in turn can mean an application falls outside the lenders guidelines. Alternatively, you may be purchasing a property outside the normal contract of sale guidelines, such as; a favourable purchase, a purchase that includes non-fixed property or a rent to buy purchase condition. In almost all cases, lenders use the lesser value that can be established. For the purchase of a property, the lender will in the majority of cases, take the lower of the valuation amount or the purchase price. For a refinance, the lender will always use the valuation amount. We have a wide range of lenders that have different security appetites and acceptable LVR ratios. Whatever your situation, we can help match your property to the right lender.
Exit strategy
It has become increasingly difficult for borrowers approaching retirement age to borrow funds. While this has always been a concern for some lenders, changes to the responsible lending laws means it is now a real deterrent for most lenders. If you are approaching retirement age and need to borrow money for an owner occupied home, or a loan for another purpose over an extended period of time, it is harder than ever to obtain finance. It is imperative that you provide with your application to the lender, a clear exit strategy: a plan for how you will clear the debt after you retire. Examples of this can include future plans to downsize, utilise superannuation or liquidate other assets. We can help you with your exit strategy as we will understand your financial situation, and we also understand the lenders requirements and know what would be considered acceptable. We can work with you to effectively communicate to the lender your plans and alleviate their concerns.
If you have had a loan declined, you can help us to help you, by being upfront about your true situation. We are on your side! Tell us if you suspect there is something that could be an issue, this way we can help you find a solution, or ensure your application goes to a lender that will be accommodating to your circumstances. If you find yourself in this situation, tell us about it, we are here to help. We will give you the facts, let you know which lenders to consider, and what that will look like. Regardless of your situation we will do our best, to work with you and get the outcome you desire.
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