It’s one thing to be ready to pay off a mortgage. It’s entirely another to convince lenders that you’re ready to do so, especially in the current environment of tighter lending standards. Here’s how to climb your way through the process.
You may have seen in the news recently that the prudential regulator has been cracking down on banks to tighten their lending standards.
In turn, the banks are putting the squeeze on finance applicants.
Here’s what you need to know to make sure your accounts can pass the test.
Why the tighter lending standards?
Due to the banking royal commission, certain banks are now asking for detailed accounts of your living expenses before approving finance.
They’ve now got to be able to prove to prudential regulator APRA that they’ve performed their due diligence.
No exceptions for the banks, means no exceptions for you.
This has led to some pretty in-depth scrutiny of borrower’s accounts and spending habits: if there’s one transaction out of the ordinary, they may decline the loan.
For example, in one case heard along the grapevine, a couple who said they didn’t have a child bought an item at a baby store and got dragged over the coals by the lender about it after the lender saw the purchase in their account.
So, in a nutshell, you’ll want to make sure you have an account that can show three months worth of clean expenses and savings that match your application.
Here’s how to do so in five steps.
1. Create a budget
First, you need to create a household budget. If you need help, the government’s Moneysmart website has a free calculator.
But remember, it’s one thing to create a household budget, it’s entirely another to stick to it.
For at least three months you need to stick to this budget religiously to show that you can you control your savings. This will set the platform for the steps below.
2. Reduce your others loans, stat!
If you have other debt, be that a car loan or an outstanding credit card balance, then you’ll want to pay that off ASAP.
Lenders can get a bit spooked when they see other debts to your name.
If you do have other debts that you’re yet to pay off, come and speak to us and we may be able to help you consolidate them into one easy-to-manage account with a low interest rate.
3. Genuinely save money
If you’ve budgeted correctly, you should be able to put some of your hard earned money away into savings.
This is important, as lenders will often ask you for proof of ‘genuine savings’.
Basically, it’s one of their ways of confirming that you’re committed to being financially responsible with your money.
4. Don’t miss payments
Once you have your budget set, schedule some direct debits to ensure you pay all your expenses on time. This includes your phone bill, internet and so on.
That’s because late payment fees that show up in your account can be a big red flag for lenders.
If direct debit isn’t an option, make sure you set reminders on a calendar – preferably the electronic kind that can alert you to reminders.
5. Be ready to explain living expenses
If you’ve followed steps 1-4, then the good news is this should be the easy step.
You’ll be able to succinctly explain and show proof to the lender that you can follow a budget, genuinely save money, make payments on time, and effectively manage debt.
Need a hand?
Negotiating the current lending landscape is tricky. Fortunately, we know what we’re doing and can guide you through it.
If you’d like help securing finance, or want some extra pointers on how to meet the tighter lending standards, then get in touch. We’d love to help out.