How to Turn a Declined Loan Into a Home Loan
Why is getting a home loan so hard?
You need to have the right deposit amount, you’ve got it by the right place,
it can’t be flooded, you know let’s buy a houseboat.
Nathan, why is it so difficult? That’s right, Jayden, so today,
we’re going to go through 13 reasons why your loan might be
declined by the banks. And also, how to get it approved.
So if you want to get your loan approved, you’re going to love this guide. Point #1, too many credit inquiries.
No, hold on. When do you get credit inquiries? Effectively, you get a credit inquiry
whenever you apply for credit via a credit card, a personal loan,
a payday lending. Okay, so does that include my
Qantas Frequent Flyer balance transfer and the one I did a month before
and the two credit cards that I just got at the mail today? So we see this all the time:
clients shopping around, picking up points through Qantas, Virgin, you name it.
It’s awesome. There’s so many videos in the internet
about balance transfer hacks, where yeah, you can and won’t paying interest on loans
and credit cards and re-invest such, sure, but every time you apply for a credit card,
you get a credit inquiry and Nathan, why is that bad for home loans? The banks look at how hungry you are for credit.
So if you’re applying multiple times for say, credit cards, this will reduce your credit score
and can reduce chances of getting approved through a bank.
So, best practice is always reduce the number of credit inquiries and try not to
do those balance transfers or pick up the points by applying with every
credit card that has points. Nathan is right. So like you said,
the rule of thumb is no more than three inquiries in the last six months.
If you had more than three, that’s okay. You just need to look for a lender or a bank
that doesn’t credit score loan applications. Point #2, side hustle. So if you’re an Uber driver, a fedora driver
or a delivery person, if you do Shebah, Uber, Ola, any of those things
and you’re relying on that income to get a home loan, we have a bad news. The banks look at this income as if
you’re self-employed, so they need to see more history on it.
So if you’ve only just started it, unfortunately, a lot of the times, the banks will want to see
at least, one or two years of financial tax returns in order to
use this income. So in other words, it’s not like your normal job,
where you can just give two pay slips and apply for a loan. If you do Uber
or deliveries or whatever you do, you need to have done your tax returns,
like Nathan said, at least one to two years to be able to use that income. Point #3, switching jobs. This one is goes out to you, Cherise.
No, so we’ve all got that mate, that’s changed jobs a bunch of times in
the last 12 months and while they might be getting paid more and more at that new job,
the problem is banks don’t love it when you’re not super stable in your position. Especially, when you’re putting down
minimal deposit, the banks would like to see you pass your probationary period.
Even better, they want to see history of you being very stable in that employment.
So at switching jobs, be careful of it. It can come back to bite you. But here’s a little life hack.
If you have switched jobs recently but if you’ve been in that same industry for
a number of years, you can actually use that to help justify why you might have changed jobs.
It might be for a pay rise, so you’re maybe up for the ladder
and a lot of bank consider that, to sort of mitigate and say, “Well, it’s actually
okay that you recently switch jobs.” Point #4, a contractor less than
12 months in their role. So if you’re an IT contractor, if you work in
the mining, if you… What other jobs are as contractors? Teachers, nurses. There’s a heap of them
out there, typically the banks will want to see that there’s more than 12 months left
on the contract. So if you have less than 12 months remaining on your contract,
be careful. This might be a question that
the banks ask you. And in these sorts of jobs, it is fairly typical
for them to extend beyond that 12-month contract.
So a few ways you can manage this with the bank is getting a letter from your employer
saying that they’re looking forward to your continued employment and they’re looking
forward to having you for longer, even though they might not extend that contract or it’s again,
showing that continuation that you’ve been in that industry for two, three, four, five years.
It can give your group certificates or even your old tax returns, to help show
the bank that you’ve been around and you plan on being around in
that industry for a bit longer. Point #5, being self-employed. Rob? Man, I’m sorry. Rob Vitala,
he’s one of my good mates. He’s self-employed and he always gets it
so tough from the banks… And the ladies. [Laughs] So what we find if you’re self-employed,
it can be a little bit more challenging to get a loan, especially because the banks will look
at your past history and earnings through your business.
That’s through tax return, so they’ll look at the last 12 to 24 months of your lodged
tax returns to the Australian Taxation Office. Yeah, so it can be more difficult because it’s not
like when you have salary and you get to pay slips and you’re off and running.
Being self-employed, you need to lodge and actually pay the tax in the past two years,
to be able to apply for a loan. There are some banks, though that will allow
only one year’s tax returns — the most recent — so there are a few ways you can get around it.
Any other tips there, Nathan that you can think of and what you can do to help
to get your loan approved a bit easier when you’re self-employed? Another thing we see with small businesses
are that their tax accountants write off a lot of expenses, so be careful not to do that
because that can have an impact on your ability to land. Point #6, you went on holidays. So this isn’t just going to Bali for
a cheeky weekend away. This is, you know, this affects even people
that say, teachers that might get paid. You might be a relief teacher and you might not
get paid holiday leave. And when you go to apply for a loan over say,
at December or January holidays, the bank says, “No.” Nathan, what do you do?
What can you do? It is a bit of a challenging one here,
especially if you’re going to be taking a loan during that break period.
So sometimes, what you can do is show the bank, this is very typical of your industry
and you do take time off over this period and that you will be going back to
work in due course. Once again, it is a case-by-case.
That can be quite challenging to get around but that’s really your options are. What Nathan said, it just could involve you
with more information. You might want to get your group certificates
or your PAYG certificates or even your last couple of years tax returns.
Again, this’ll show that your income is consistent and that while you don’t normally
get paid in the December or January, your pay throughout the year
is always a regular amount. Point #7, over time, shift allowance, penalties. I don’t get why bank would decline you
for earning extra money but it’s something that we see really, really often.
You could be a nurse that gets paid regular shift allowance or you could be
a fire truck driver that gets paid meals and extra allowances or… I don’t know…
You could sell caravans and get paid bonuses. Nathan, why don’t they allow you to
use this income and what do they do with it? Yeah, the bank look at consistency.
So if there’s no consistency around the last three months for commissions
or allowances, they generally won’t use it. The same goes with bonus, the banks want to
see a two-year history there, so they can get a bit of a comfort around. Which is crazy because in these jobs,
it’s just a regular function of what you do. If you’re a nurse, you’re used to getting paid
shift floating and you’re used to working with regular hours, which is why with different banks,
that will allow you to use these amounts. Like you said Nathan, some banks flat out
won’t use bonuses unless you have history. Others will consider it, so you just need to
be prepared for that and you need to be aware of extra information you might
need to present. You might need to get a letter from
your employer, you might need to show the evidence of that money into your account,
a couple of few extra details that you might need that can help you to
get your loan approved. Especially, if you’re getting salary sacrifices
because the banks will try and lower your income here and that’s where you’re going to
need things like a letter from employer saying that it can be canceled any time. Important to
be aware of it. Don’t be alarmed.
It’s definitely something you can get around. Point #8, missing phone bills, gas bills,
electricity bills. Singing to the choir. I remember, when I was
living in a share house down in Sydney, I moved out but it was also like
‘see you later, later taters.’ Anyway, I’m moving out and found out
a few months later that one of the people in there forgot to pay their power bill
and it was in my name and it could have been really, really disastrous because if you miss
a power bill, what happens Nathan? The power provider will leave a mark
on your credit file. They’ll slap you. They’ll slap you harder
than the police when you get a fine. It’s actually puts a default on your credit file,
which sticks around with you for years. It can stop your home loan application. Be careful of it, we see it all the time:
power bills, telcos, energy company. You can move address and you can forget
about a phone bill and then suddenly, a few years later, it stops you from
applying for a loan. So like Nathan said, just be aware of what’s in
your credit file. There’s a bunch of free services out there.
If you search for a free credit file, you can go on Equifax credit reports
and get your credit policy. If got any, you know, bad history on there
that you might not even know about, that could be stopping you from getting
your home loan approved. Nathan, otherwise, what else can you do? I think another way you can do it is with Equifax,
you can actually sign up for a service. I think there’s a monthly fee or an annual fee,
where every time something is lodged on your credit file, you get automatically notified,
so you can keep an eye if a telco leave something on your report that
you’re not aware of. You find that straight away and you can fix it up
as soon as you find out — That’s good for identity fraud as well
because you don’t know if someone’s taking your credit file for a run and you might
not know until it’s too late, so those alerts are great to
help you out and get in front of that. Point #9, spending habits. So, as crazy as it sounds, spending a bit too
much of Dan Murphy’s or Zara can actually stop you from getting your home loan.
Nathan, isn’t that right? So the banks will actually trawl through your last three
to four months statements on what you’ve been spending and what you’ve been
spending too much on, potentially? That’s right. So they call it ‘propensity to repay’
— it’s a big word — more or less means what’s your ability to afford the repayments
on this loan. They’ll look at your history. They’ll look at your spending patterns.
They’ll look at you savings patterns and they want to show and see that you have
the ability to pay them back that loan. So, how can we actually-
So, what can you do to prepare for that? The easiest thing to do is save money. Yeah. I think the simplest tip is look at what
your mortgage repayment is going to be once you get that loan. So say, $2000 a month
and work out, if you’re only paying say, $1000 a month at the moment, try and show
that you’ve been able to make that $2000 a month mortgage repayment over the last few years. It’s a pretty simple little thing to do
and like Nathan said, saving is the easy way but doing that, actually shows that you’ve been
able to afford that mortgage repayment and you will be able to afford it once
they give you that loan. Point #10, buying units in apartments. So banks have this weird rule that they called
high-density areas,’ which effectively, most cities are high-density,
aren’t they, Nathan? So why do they have restrictions on these places
and why don’t they want you, in some cases, buying an apartment in these areas? A lot of banks have geographical locations,
whereby they look at the postcode of the area buying it.
If you’re buying a unit or a townhouse or an apartment, they may restrict
the lending for you. Not all banks have this. Some look at the property itself, so they look at
the tower and let’s say, “I will only lend so much,” so the banks only want to expose
themselves to a certain level and then they’ll stop. And that kind of makes them sound like
a stripper exposing themselves but the reality is that banks don’t want to have too much lending
in one particular building or one particular area. So what you just need to be aware of is that
there are postcodes out there. Usually, if the building’s got more than
four stories or it’s got a lift, it could be in the banks high-density register, they call them.
So just talk to your mortgage broker, they can check out that a specific suburb or even
that particular building to see if the banks is happy to lend in there or if they’re not,
because like Nathan said, some banks, while they’ll be happy to lend in there,
they’re going to want you to put down a way bigger deposit than the next bank. Point #11, buying properties
with renovation issues. Yes, I’ve been watching ‘The Block’ a lot
and I feel like I could just rip out a bathroom at any time.
The bank is cool with that, right? A lot of the times that banks will look at
the property and they want to see in an inhabitable position, meaning you can
actually live in it. If it’s in a position where you can’t live in it, they’re going to be quite
reluctant to lend you the money. At least, they want to going to see that
you’ve got the money to complete the renovations yourself.
So just be careful of that if you’re buying a complete dump that has great potential
and heaps of upside, you can have a lot of downside when it comes to the bank
than lending you the money. There’s three rules of thumb and this is
what they usually want. They want a kitchen that’s got a sink in it,
they want a toilet that has a bowl in the place, and they just want windows and doors
and carpet there — And Gyprock.
They want to see Gyprock on the walls. Yeah, no holes in the walls.
As long as it’s not that bad — If needs a lick of paint, you’re fine.
If it needs the dude from The Block to go through there and completely renovate it,
you’ve got issues. That’s it. The two bonus ones that
we missed out on there, if you’re really listening are working with family.
That’s another huge issue where you need to show your tax returns and a bit more
information there and the one bonus is… you let us know. We’d love to learn from you guys.
Hit us up in the comments. If you’ve got any questions or if you had
your loan declined lately, we’d love to help you out. So hit us up