Presenting your home loan application
You may find that your auction didn't attract the number of bids that you hoped for . Often a review of the way in which your application has been presented may reveal one or more items that could be changed to improve your chances of a more beneficial outcome.
For example, The amount that you want to borrow may mean that the loan to value ratio for the particular property may be a little high in relation to the nature, size and location of the property that is being offered as security. Lenders typically want to make sure that adequate security is offered (including taking into account the value that a property has in terms of saleability) and they impose certain maximum levels on the amount that can be borrowed against a certain type of property.
Alternatively, the loan amount that you have requested may be considered by lenders to be a little higher than what is affordable taking into account your expected expenses. Lenders want to see that you have the ability to make the regular loan repayments without placing any stress on your own finances and your ability to cover other everyday expenses such as rates, insurances, food, petrol and savings plans etc.
If you have submitted an application to auction and have not received the results you expected you may wish to start by considering whether you can offer additional security, or request a lower loan amount.
A scenario for David and Sarah
David and Sarah own a property valued at $400,000 and have an existing home loan of $300,000. This means that David and Sarah have a loan to value ratio (LVR)of 75%. When they first purchased the house they only had to present to their lender a copy of their Sale and Purchase Agreement because, with an LVR of 75%, the lending the agreement was considered by their lender to be sufficient evidence of value. Their personal circumstances meant that their regular repayment amount was $2000 per month.
David and Sarah have now submitted an Application through FUNDIT. They want to refinance their existing loan of $300,000. They would also like to borrow another $80,000 to pay for property renovations and to buy a new car for their son. This takes their new proposed total loan amount up to $380,000.
With a new loan amount of $380,000 and a property value of $400,000 this means that David and Sarah now have a new loan to value ratio of 95%. With an LVR of 95%, most lenders will require David and Sarah to obtain a registered valuer's report as evidence of the value of the property being offered as security. The cost of this is likely to be several hundred dollars to David and Sarah to pay for the valuer.
Also with a loan amount of $380,000 David and Sarah's new regular repayment amount will increase to $2400 per month. In David and Sarah's case the monthly repayment amount is higher than the level that most lenders would typically be comfortable with taking into account David and Sarahs net income after expenses.
With the new loan to value ratio at 95% and monthly repayments being more than lenders would typically be comfortable with, David and Sarah's current application is less attractive to lenders than their loan application was when they brought the house.
How can they overcome this?
David and Sarah were disappointed by the results of their FUNDIT auction and decided to relook at the amount that they were looking to borrow. By revising whether they actually needed to borrow a further $80,000, David and Sarah decided that they really only needed $50,000 of the extra money requested.
With a loan amount of $350,000 their application results in a total loan to value ratio of 87.50% and a registered valuer's report is not generally required by most lenders. Also their monthly repayment amount drops down to only $2250 per month which is more affordable for them.
David and Sarah decided to reduce the amount that they were looking to spend on the renovations by using slightly cheaper materials and by doing a little of the work themselves. Their son was able to contribute some money towards the new car that he wanted to buy.
David and Sarah used the FUNDIT website to duplicate their initial Application and simply changed the loan amount requested from a total of $380,000 to $350,000. They then resubmitted their application to auction.
The combination of the lower loan to value ratio and the more comfortable repayment amount attracted slightly more interest and better terms from the lenders. David and Sarah were able to chose one of the bids and made contact with their new lender after the auction closed to present their verification of details and settle their new loan.
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