Whether you’re applying for a job, a spot on The Bachelor or even an investment loan, you want your application to be perfect. This means doing the necessary homework and preparation to ensure you’re an ideal candidate. But when it comes to impressing your financial lender, it’ll take more than a new dress (or tux) and a rose to get the stamp of approval.
To help you buy an investment property sooner, here’s what the bank will be looking for in your loan application:
1. Borrowing power.
Before you’re approved, it’s important to assess how much you can afford to pay back. Lenders will look at your annual income, monthly expenses, current interest rates, the loan term and the type of loan you’re applying for. They’ll also look at existing debts and financial commitments, such as credit cards and lease agreements (e.g. car and mobile).
The ME online borrowing power calculator can help you estimate your total purchase power.
2. The type of property.
Not all properties will be approved by the bank – even if you think it’s ‘the one’. Lenders are looking for low-risk investments, so the investment property must:
- Be a standard house, unit or townhouse, or land and construction.
- Be greater than 50m2 living area
- Be in good condition
- Be in a high-demand area with a population of 10,000 people or more.
So, if you’re thinking about turning that little beach shack into your retirement fund, you may want to reconsider the property.
3. Loan to value ratio (LVR).
Loan-to-value ratio is the percentage of a property’s purchase price / value obtained from a property valuation that a lender will let you borrow.
Applications with a lower LVR are more attractive to the bank and are more likely to be approved. For example, if you buy a property for $400,000 and need a loan amount of $300,000, the LVR will be 75%.
If you borrow more than 80% LVR, you may also need to pay Lender’s Mortgage Insurance – it’s a one-off cost that can be added to your loan to protect the lender if you’re unable to repay your loan.
To help you save enough for a deposit, open a dedicated savings account. An Online Savings Account with ME has no account-keeping fees and a variable base rate of 1.30%p.a. to help you get your loan approved sooner.
4. Your credit history.
Remember that old phone bill you never paid? Or that overdue credit card statement that was hiding in the kitchen drawer? It could hinder your application.
Unfortunately, unpaid bills or records of late payments could put a black mark against your name. So, if you currently have a few unpaid bills, either pay them ASAP or contact the credit provider immediately to discuss a payment arrangement.
5. Employment.
If you’ve been going through jobs like speed dates, lenders could see you as high risk ¬– they want applicants who’ve been with the same employer for a minimum of two years and can prove they’re financially stable.
Banks are also less likely to lend money to those who have just started a new job and are in a probationary period. So if you’re planning on purchasing an investment property, it’s better to apply for a loan before switching jobs.
6. Your intentions.
Just like giving someone a rose, it’s crucial the financial lender is aware of your intentions ¬ – leading them on for the wrong reasons could land you in big trouble.
Because investment loans attract higher rates, you might be tempted to take out an owner-occupier mortgage (despite you never living there). This is called occupancy fraud and it comes with some pretty big penalties (AKA, don’t do it).
Instead, let a ME mobile banker help you find a low rate loan to suit your financial situation.
Applying for an investment loan and getting is approved doesn’t need to cause you heartbreak. Getting all your ducks in a row before you apply can you help buy the right property sooner.
This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.