All organizations in the mortgage industry require a prospective borrower to fulfill their selection criteria before they will approve a home loan. Traditional lenders tend to have more stringent criteria- the non-conforming lenders are a lot more flexible, and the mortgage managers are somewhere in between.
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A Guide To Your Credit Profile In Australia
Author: Jennifer Schelbert A. Fin. / Dip.Fin.Serv – FinMBM is a director of Mrs. Mortgage, a licensee for Choice Aggregation Services, and a full member of the Mortgage & Finance Association of Australia & COSL.
Phone: 61 3 9315 9750 Web: http://mrsmortgage.com.au
Article Source: http://EzineArticles.com/
All organizations in the mortgage industry require a prospective borrower to fulfill their selection criteria before they will approve a home loan. Traditional lenders tend to have more stringent criteria; the non-conforming lenders are a lot more flexible, and the mortgage managers are somewhere in between.
Before deciding to apply for a home loan, there are several things you can do to prepare for your meeting with your mortgage broker or lender to help then and you through each stage of the application process.
Know your finances
Get an accurate picture of how your personal finances stand now, and have a plan for the future. Be able to show your monthly income and expenses, your savings and investments, any personal loans and leases, what’s in the bank, on the credit card, etc.
Tips: Get help from an accountant or financial planner; use one of the inexpensive personal finance software packages available; prepare a budget.
Think Like a Lender
Put yourself in the lenders’ shoes and think about what information they’ll be asking you, what evidence you will need to provide, what qualities they’ll be seeking, and what additional information you can provide to support your loan application.
Knowing the five C’s of lending can help you with this: Character: stability, credit history, intention to repay the debt. Capacity: can the borrower repay the loan? Capital: what’s the financial position of the borrower? Collateral: what security is offered? Common sense: will the application and use of funds make sense to the lender?
Tips: Do some research – talk to people you know who have applied for a loan and ask them about their experience, grab a book on mortgages or use the internet. Get hold of a loan application form or a mortgage document check list. Talk to an MFAA member – they’re making applications to lenders constantly and work for you to make the loan application process as easy and quick as possible.
Review your credit reference
Everyone in Australia has a credit reference, which is held by a company called Baycorp Advantage. It’s a record of your credit history, going back five years, detailing any loan enquiries or applications you’ve made, if there’s been a default on a credit card or loan, a bankruptcy, even if you have an outstanding bill, etc. You can buy a copy of your credit reference from www.mycreditfile.com.au
Lenders will look at your credit reference in the loan application process; a negative reference will affect your ability to borrow money.
Tips: Be honest and upfront – it’s best your lender or mortgage broker finds out from you, not your credit reference, if there are any problems with your credit history. If there has been a problem, explain why it occurred and how you rectified it. Don’t make too may applications for finance – each one shows up on your credit report and multiple enquiries can be equated to a problem. Don’t have any arrears on bills, credit cards or store cards. If you believe there to be any discrepancies or mistakes on your credit reference you are able to challenge them.
Non-conforming lenders will consider applications from people with more serious credit issues. However, they will still expect the borrower to explain the problems that occurred and the steps that were taken, or are being taken to correct them.
Reduce the plastic
Lenders will want to know how many credit or store cards you have and the limits on each card – what you have the potential to spend, not what you owe or how good you have been at repayments.
Tips: Eliminate any excess credit or store cards you have. Reduce the limits on the credit and store cards you use.
Save, save, save
By demonstrating a good and constant savings record you show the lender you can manage a mortgage. Generally lenders want to see a minimum of 5% saved regularly over six months or more.
Tip: By being able to put down a 20% deposit on the property the borrower avoids the lender having to take out lenders mortgage insurance (LMI). LMI criteria are more stringent and less flexible and the insurance company is generally not as receptive as lenders when it comes to credit problems.
*Disclaimer: This article is for information purposes only, and must not be relied upon as a substitute for professional services or legal advice.
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The review "What is Your Credit Profile?" was last updated on 20/06/2009.