Don’t make the mistake of approaching a lender just because you have done business with them for years or like the bank manager. Your current bank may have one or two products that suit your needs. There will be many more out there. By all means consider your current bank, but also shop around. You might find a lender with better interest rates, more flexibility, or with lower qualification criteria. It should cost you nothing and you have the peace of mind knowing you got the best deal or your needs.
2. Poor Credit History.
Check your credit history before you apply for a loan. You can explore online services to find out if there is anything recorded that could jeopardise your chances of getting a loan. All lenders check your credit record and many will bin your application if there are any bad marks against it. It’s not the end of the world if you do have credit impairment. There are lenders who specialise in this segment of the market. The trick is in knowing who to go to.
You can even subscribe to a service which tells you every time an enquiry is made on your credit file or information is lodged. It is good protection against identity fraud.
3. Poor Financial Records.
It’s a big mistake to provide a lender with poor or incomplete records of your earning capacity. For full-doc loans you will need accurate up to date statements of your income. This may include pay slips, tax returns or contracts of employment. If you are self employed you will need two years of tax returns for yourself, for your company and for any other borrowing entity.
Some lenders will also require up to six months of bank, credit card and home loan statement. You will also need to provide a detailed list of your assets and liabilities. Much of the burden of supplying this information is lifted if you apply for a no doc/lo doc loan, however lenders will still expect you to sign an income declaration form along with the statement of assets and be prepared to pay a slightly higher interest rate.
It’s wise to get all this material together BEFORE you apply for a loan. Failure can delay the application and jeopardise the deal.
4. Expecting Instant Results
Don’t expect a lender to approve a loan overnight. It really depends on the market at the time you apply. If a lender has been promoting a special offer (probably the reason you applied) then you can be sure that hundreds if not thousands of other borrowers are also in the queue. In such circumstances processing can slow to a crawl. If there are problems with your documentation you’ll be shoved to the back of the queue. That can delay approval and settlement. Give yourself plenty of time to get the deal done.
Ask your broker, and the lender, what the current processing times are.
5. Ignoring the Rate Lock Fee
Fixed rate loans can be a trap. You may apply for a fixed rate offer, but find rates have increased while you are waiting for the property settlement and you’re stuck with a much higher rate. As insurance, lenders offer a rate lock facility. For a fee you can preserve the rate you applied for. Many borrowers choose not to pay the rate lock fee preferring to gamble. That can be a big mistake, especially if you have negotiated a long settlement on the property. Rates can go up overnight and without warning leaving you feeling severely burnt when you discover you’re up for more than you originally bargained.
6. Looking Like an Amateur
Property Investors need to show lenders they know what they are doing – especially if they are embarking on projects involving building work and on going borrowing. Let the bank know of your experience and the experience of those who work with you. Provide accurate details of the project. Put a short business plan together explaining exactly what you intend to do, how you intend to do it and what your profits will be at the end. Lenders like to do business with borrowers who operate with their eyes open and who will bring in regular business.
Show the potential lender that you are stable and can make solid decisions. Don’t submit a loan proposal, only to call the lender a while later and tell them that you’ve reconsidered and plan on using the money differently than stated in your paperwork. Submit your proposal only in the event that you are 100 percent sure of your actions and will not change your mind.
8. No Equity
Without equity in real estate or in cash your chances of securing a loan can be severely damaged. While this is sometimes unavoidable, and some lenders will let you borrow up to 100 percent of the cost of a property, such loans require the payment of lenders mortgage insurance and may attract a higher interest rate. If you are representing govt department you may look forward to finance infrastructure by land based financing.
9. Misleading Information
The penalties for fraud are high, so it is a serious mistake to disguise liabilities or lie about your income. Lenders have access to an enormous amount of information and they talk to each other. If there is even a hint of something untoward in your loan application your chances of getting the loan can be seriously impaired.
10. Leaving it to Someone Else It’s a mistake to think your broker or lender won’t make a mistake. People do. It’s human nature, so you need to take responsibility for your own circumstances. If you don’t you may end up with a loan that is unsuitable and which may cost you thousands. Communicate and ask. If there is anything you don’t understand query it. Read the loan documentation carefully. Get your broker, lawyer, and accountant or bank manager to explain anything you don’t understand. Be especially clear about the fees and charges to avoid any nasty su