Amongst all the questions I’ve been asked about the banking royal commission, one gets asked by far the most.
“I have heard that as a result of the royal commission it will be harder to get a home loan. Is that true?”
Well, the answer is yes. But don’t panic. The reality is that it has been getting harder and harder to get a home loan over the last couple of years, so it’s really nothing new!
Here are four things that you need to know about the mortgage process.
1. Banks “stress test” your repayment capability
Whether you get a loan or not is not just based on current interest rates. Banks will calculate whether they think you can afford the mortgage today, when the rates go up a little bit and when the rates go up a lot. So even if you can afford the repayments today, you may not get easy approval on a loan.
Paying off your mortgage ahead of time can be done. This couple did it in four years. Post continues.
2. Living expenses count
Where the banks once made (rather generous) assumptions on how little you might spend on expenses in order to afford your mortgage (think living at the poverty line), there is now a growing trend towards requiring clients to submit a detailed budget – and if the bank believes the figures you provide are too low they will use their own figures.
While overall this is a good thing as people can’t take out loans that they can’t afford, it does mean that as a result, many people are unable to refinance as their living expenses are deemed to be too high.
In the coming years, it is expected that rather than asking you to declare your living expenses, banks will simply take advantage of their data feeds to automatically pre-populate that info from your bank accounts. Technology, right?! So it is important to start getting your spending under control today. Not to mention that this will help you to cope when interest rates inevitably go up!
3. You’ll need to show proof
Whether you’re applying for a new loan or a refinance, you’ll likely need to provide some solid evidence of your expenses and your income. Expect to be asked for:
– Two recent payslips (or your last two tax returns if you’re self-employed)
– Proof of your identity (e.g. Medicare card and drivers license)
– Details of your outgoing expenses – bills and spending habits
– A rates notice (if refinancing) or a Contract of Sale
– The last six months of bank statements on your mortgage (if refinancing)
– Copies of your credit card and personal loan statements
4. Mortgage brokers can help
Not all banks have the same lending criteria, so using an experienced mortgage broker can save you a lot of hassle, especially when more paperwork is required now than ever before. This approach can also help to protect your credit score as multiple applications and, of course, any declined applications can have an impact on your score so better to get things right the first time.
The key is to be prepared to provide detail – and of course, do your research so you know what you can afford before you apply.
This post originally appeared on Women with Cents – a community that helps women take control of their finances. Natasha Janssens is its founder and a qualified accountant, money coach and finance expert. You can read the original post here.