I am a big fan of building relationships – be it with family or clients or anybody I come across (as long as I like the person). So I regularly schedule meetings with bank BDMs (Business Development Managers) to see how they can help me help my clients with their home loan approvals.
A couple of days ago, I met one of the BDMs and this was due an issue I had recently with the bank.
The basic discussion was around how the bank screwed up a loan approval for one of my best clients. She was a dentist and was borrowing less than 80% (no LMI) and they wouldn’t approve the deal until the last minute. The assessor kept asking for document after document and it got to a stage where I had to get higher authorities involved. This client had the capacity to buy a $700k property with cash and the bank wouldn’t approve the loan. How ridiculous!
I want to summarise here some of the points discussed – hopefully it gives you some idea of how the banks work and why some applications are approved and some not..
Scenario 1: You may have the borrowing capacity and have the basic 5% deposit that you have saved. You assume your deal is straightforward and should be approved quickly.
Possible reason for decline: Bad conduct on your bank account(s) – meaning you frequently overdraw your account and pay late fees or overdrawn fees.
This indicates that you cannot live within your means and if the lender provides you with a bigger debt, there is the risk that you won’t pay it back.
Scenario 2: Another popular one that I often see is single applicants who want to buy a property. They are usually living with their parents rent free.
Possible reason for decline: No savings at all plus one or two credit cards. A bank assessor always looks for your capacity to save when they assess your file. If you are living with your parents and not pay any rent and yet don’t save much, how will you manage to make repayments on your mortgage debt?
Scenario 3: You have good conduct on your bank accounts, have saved the 5%, are in a steady employment but have two or three credit cards – all maxed out plus a car loan and a personal loan. Your servicing is very tight.
Possible reason for decline: The number of credit cards and other loans indicate that you are struggling to live within your means and it can be risky approving your home loan.
Apart from the above scenarios, sometimes bank may not approve your loan because of credit scoring. This is different from your credit file. A combination of external and internal factors may result in a loan decline.
So click here to download my top twenty tips to get your loan approved.
Happy shopping and remember I’m only a phone call away ((03 9005 3983)- should you want to discuss your home loan needs.