What To Do When The Bank Says No

A quarter of all mortgage applications are declined.  Here are some tips to ensure that you’re not amongst them and, if you are, they’ll show you how to become more attractive to the credit analysts who have power over your loan.

One of the key reasons a bank will reject your loan application is if it decides you don’t earn enough to repay the loan.

The following suggestions may help you overcome this serviceability problem

• Shop around.  Every lender has its own serviceability calculator by which it qualifies borrowers.  Some lenders assess serviceability at a lower interest rate than others consequently income which may be inadequate to one, could be acceptable to another. Your broker has access to all the lenders’ calculators.
• Boost your income by including “add backs”.  This is money available to you, but which you do not receive in your pay packet such as salary sacrificed super.  Company provided vehicles can also be added to your salary.   If you are self employed you can also add back such things as depreciation and some interest payments.
• Take an interest only loan.  This can save between $200 and $300 a month in repayments compared with principal and interest loans. An extra $300 a month can dramatically increase your serviceability score.
• Reduce your credit card limits.  Lenders determine how much debt you have by assuming your credit cards are drawn to their limits.  Cutting your credit card limits in half reduces the debt by half.
• Consolidate existing debts to reduce repayments
• Lodge a cash deposit to cover 1 year’s interest
• Take a honeymoon rate.  The low initial rate can improve your serviceability score.
• Show the purchase or sale of real estate assets as income, not capital gains.  Talk to your accountant about this one.
• Include expected rental returns and negative gearing benefits as income.  Some lenders take negative gearing benefits into account, others do not.  Find a lender who does. Your broker will know.
• Add value to existing assets to increase the security value
• Use shared equity. Get parents to help out, or use one of the new products available.
• Try a lo doc loan. These are good if you lack up to date financial records.  But never inflate your earnings beyond reality.  You could find yourself the subject of fraud investigations.  The tax office may also decide to audit your affairs if your loan application suggests you earn more than you have declared.