Low equity lending 2012 The four biggest mistakes and the solutions

Over the last few years  we  have seen lenders revert back to a degree of comfort, for customers with home loan deposits of 5 - 20 percent. It is a lot easier now, than it has been for a number of  years.

However challenges still exist for customers with lower deposits  , as is evidenced by the  number of client applications which are not being supported by the lenders.

To assist customers in today's current environment here are The Four Biggest Mistakes Made with Loan Applications with deposit less than 15 percent,  ... and the solutions.

Mistake # 1 being under prepared with paperwork

The challenge is to not wait until the last moment to apply, then not be prepared with the appropriate paperwork.

One of the key's to having your new home loan application approved seamlessly and stress free,  is to have every piece of paperwork that the lender would require provided  in the first instance. So that the lender does not have to circle back to request additional information, or further supporting documentation.
Have all supporting paperwork in front of the lender in the first instance,  the lender can then make a final decision without delay.

Be prepared with : completed application forms, evidence of income ie payslips or  financial statements for the last 2 years, last 90 days bank statements on all main accounts ( Internet printouts are fine but must show a daily running balance on the right hand side ) , last 6 months statements on savings account history or term deposit history.

Mistake # 2) Letting the paperwork support the loan application

Generally speaking  how the loan is submitted. is the key to if the loan will be approved or not.

It is important therefore to comment and provide all the relevant  mitigants that might exist, to put application in the best light possible  for the lender ( not to leave it to the lender to find or to look for mitigants in support of why the loan should be approved ) Make it a easy as possible for the lender to say yes.

Having no questions for the lender left un answered so that the lender can make a decision straight away without re clarification is the key.

Mistake # 3) Income is sufficient to support the loan

A few years ago having sufficient income and a 5 per cent deposit,  would provide a bank with sufficient information to enable them to approve the application . Today the threshold is so much higher, just having sufficient income is not enough, it is also the pattern of behavior which is just as important.

The key to success is a good, clear strong  pattern of pre loan and post loan behaviour over a period of at least 6 months.

As an example assume your current rent is $1200  per month; you are contributing to a savings account on average over the last 6 months  $1,000 per month; and the loan repayments for the new loan will be $2,000 per month.

The key to approval is the Pre loan / post loan pattern.

Pre loan expenditure is $2200 per month ( rent expenditure and average savings )
Post loan repayments are $2,000 per month;
Customer has  demonstrated a clear pattern of behaviour over and above what loan repayments will be once in place by the sum $200 per month.

If there is a shortfall,  the key is to mitigate and to provide a clear picture to the lender to close the shortfall as much as possible.

Mistake #4) Too busy to look at a different approach

Many people are busy and rely on the advice of the existing relationship that they have.

However every customer has a different set of circumstances which is unique to them

The key is to look at a different approach , what else is out there? what are all the options ? rather than just relying on the existing relationship.  What else is out there that might be a better fit for my unique set of circumstances?

Today 85% is the new 80% in that there is no low equity fee or margin payable if you borrowed at this level, borrow above 85% low equity costs apply.

Some lenders low equity margins are lower the others; Some lenders low equity fees are 2 - 3 times lower;
So there is serious money to be saved to ensure that if you are looking at a low equity loan, that you are taking the best approach.

Your unique set of circumstances will determine what the best approach should be.

If you are grappling with any of the issues above, Mark brings such a unique approach to mortgage advice with 14 years experience,  and can be contacted on 04 471 2036,  021 990 969 or mark.thomson@mikepero.co.nz. markthomson.co.nz