Lending Support
Sydney Morning Herald
Wednesday June 23, 1999
Although it's easy to borrow money these days, applying for a loan is still no mug's game. ANNETTE SAMPSON
For many people, the most important aspect of banking is borrowing. While the days have gone when getting a loan meant dressing up in your best suit and sitting, knock-kneed, in front of a bank manager, it still pays to do your preparation.
Tim Bolton, a principal partner with Mortgage Solutions Australia, says lenders these days are "bending over backwards" to get your business. You can ensure an easy ride through the application process by having all the required information handy. He says that if you are applying for a loan, you should have the following records available:
* Copies of credit card statements showing your credit limits.
* Your last two years' tax returns or group certificates. (Some lenders also like to see recent payslips to ensure your income details are current.)
* If you are self-employed, the last two years' profit and loss statements, balance sheets and tax returns.
* If you are putting down a deposit on a home (and not just selling one home to buy another), evidence of your savings record - generally bank statements showing how and where you have accumulated the funds.
* If you are refinancing, copies of the statements for the past six months on your existing loan.
* If you have selected a home, a copy of the contract of sale, or if you are refinancing, a copy of the title certificate.
If you have had a problem in your loan history, says Bolton, be upfront about it. Chances are that a check with the Credit Reference Association (see Credit Worthy on page 20) will bring it to light anyway, and the lender is less likely to be put off if you declare it in advance and
have a reasonable explanation for it.
Be aware, too, of any potential problems with your loan application and ensure you speak to the right people to get the right decision.
Bolton says one problem that is emerging concerns customers phoning home loan hotlines, obtaining a quick assessment of their likely allowable borrowings, and going to auction and buying a home - only to find out later that their loan has been declined.
He says these "quick assessments" offered over the phone are often just that, but consumers believe they have had the OK from the bank.
Borrowers should also be mindful of the existence of mortgage insurers, he says. Lenders pay a premium to these groups to insure them against losses from a loan - in much the same way that consumers insure their home or car against potential losses.
However, mortgage insurers will often assess a loan differently from a bank. Bolton says they can be tougher. "Get your lender to qualify whether there are any issues they will need to work through with the mortgage insurer."
According to Bolton, most banks require borrowers to pay mortgage insurance only if the loan is for more than 85 per cent of the property's value, although some mortgage insurers require insurance at 76 per cent.
There are some types of property that could cause loan problems, and Bolton says it pays to be aware of these.
Small CBD units, for example, cause concern with some lenders (who perceive there is a glut of them on the market and they will be difficult to re-sell).
Bolton says that while some lenders will lend up to 80 per cent on such units, some may lend to only 50 or 60 per cent. He says units of less than 40 square metres are vetoed by some lenders completely, while some won't lend against units of 50 or 60 square metres or less.
"One of the major lenders has just reduced its loan-to-valuation ratio on apartments generally [regardless of size] from 80 to 60 per cent," he says.
Is there a way around these limits? Again, if you are a good customer there may be a way.
If you have other assets, plenty of equity in them and are seen as a low risk, the lender may be prepared to be more flexible.
"Any lender will look at your total net worth and its own fall-back position," Bolton says.
"If the property falls over, they want to know you can repay the debt."
© 1999 Sydney Morning Herald
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