First-time investor? Here’s how to apply for a loan

Here's the thing: applying for an investment loan is very similar to applying for a job. It’s all in the preparation. Yep, you want to make sure you’ve researched everything imaginable, talked to the right people and ticked all the boxes to get the stamp of approval. But where do you even start?

To help you buy an investment property sooner, here are our top tips on what a bank will be looking for in your loan application:

1. Know your 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, any rental income expected, 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. Consider your type of property.

Not all properties will be approved by the bank – even if you think it’s ‘the one’. Most lenders are looking for low risk investments, so the investment property is likely to be assessed on the criteria:

• If it’s a standard house, unit or townhouse, or land and construction
• If it’s greater than 50 m² living area
• If it’s in good condition
• If it’s 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. Learn about loan to value ratio (LVR).

Loan to value ratio is the percentage of a property’s purchase price or value obtained from a property valuation that a lender will let you borrow.
                                                               
Applications with a lower LVR can be more attractive to the bank and 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%. It’s important to note though that the application will still need to satisfy all the mandatory criteria (i.e. serviceability, which is your ability to be able to afford the repayments), regardless of LVR. 

If you borrow more than 80% LVR, you may also need to pay Lenders Mortgage Insurance (LMI) – it’s a one-off cost that can be added to your loan to protect the lender if they incur a loss because you’re unable to repay your loan.

4. Clean up 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. Look at your employment.

If you’ve been going through jobs like speed dates, lenders could see you as high risk – they may prefer applicants who’ve been with the same employer or worked in a similar industry for a significant period of time and can prove they’re financially stable.

Banks can also be less likely to lend money to those who have just started a new job and are in a probationary period.

6. Ask about predominant pricing.

If you’re umming and ahhing about buying an investment property, we have some good news. You might be able to leverage ME’s ‘predominant pricing’ policy. How does it work?

ME will apply the owner occupier rate to any loan that involves both an owner occupier and investment purpose, provided the amount for the former is higher.

If the second property is an investment, customers may be able to make use of ME’s ‘predominant pricing’, where multiple properties under one loan contract can receive owner occupier rates provided at least 50% of the contract value is for the owner occupier residence. Some conditions do apply, so it’s worth chatting to your ME mobile banking manager for more of all the nitty gritty details.