Different Lenders with Different Policies
There seems to be a misconception that lenders offer the same products, policies and their overall lending capacities don’t vary enough to make a difference on a home loan application. This is not the case and the reason why many people give up on their dreams as they continue to hit brick walls or deal with inexperienced lenders or mortgage brokers.
Many lenders offer products that provide different approaches to specific policies. The reason behind this is to assist them in standing out from their competitors in the market.
In this article, I am going to discuss some of the ‘niche’ policies that lenders offer that could assist in your lending application that many lenders may not consider.
Lender Servicing Capacity
Working as a mortgage broker, I have access to over 40 different lenders, and the various software that we use provides an estimated borrowing capacity based on the same income, liabilities and any other factors that are considered when applying for a loan.
I receive numerous calls from clients advising that they have been with a particular bank who will only provide them with an amount that falls well short of being able to purchase the property of their dreams. The reason is every lender has very different ways of crunching the numbers, and in some instances, finding the right lender could mean an additional $200-300k in borrowing ability compared to another lender.
Some of the things that lenders look for on an application that may vary from one lender to another include:
- How they calculate existing home loan repayments
- The minimum living expenses factored into an application
- The minimum repayment required to be factored in for credit card limits
- The amount of bonus/commission income the lender accepts and over what period it needs to be confirmed (i.e. minimum three months history or minimum two years)
Although the above points may not seem like they make a big difference, this can definitely make or break an application.
For example, some banks use an increased interest rate to factor in any future rate increases instead of the actual minimum repayment. This can add thousands of dollars to your monthly expenditure and decrease your borrowing capacity considerably.
Maximum LVR (Lending to Valuation Ratios)
This tends to affect first home buyers who have gone into the local branch and are advised they would need a 20% deposit before even being considered for a home loan.
Certain lenders will provide a loan up to 100% inclusive of the mortgage insurance premium to purchase their first home. This does not mean that you will not require a deposit, but it will provide the ability to use a minimal deposit to get into your first property. The data at right shows a transaction based on a $600K purchase in Victoria as a first home buyer.
Although the Lenders Mortgage insurance is quite high, it still gives a first home buyer the opportunity to buy their first home up to a value of $600K with only a $40K deposit. Many mainstream lenders would need a minimum of $120K before even considering taking on the borrower.
Maternity leave is a common issue (when it comes to lending) that many people are advised will affect the overall servicing capacity. In many cases, this leaves the income entirely out of the picture although there is a plan to return to work. The majority of lenders will not consider applicants on maternity leave, but there are a few lenders that can accept the full income as long as the following requirements are met:
- A letter can be provided confirming a return to work date
- Applicants hold enough funds in savings or redraw that will cover the minimum repayments until the return to work date
- They have been with the current employer for a minimum of 12 months
Losing an applicants full income can make an enormous difference to the overall servicing, and many would-be buyers miss out purchasing a property because they have been given limited information.
Bonus/Commission and Overtime Income
Bonus/Commission and overtime income have in recent times gone through some significant changes, especially over the past 12 months. What used to be accepted in full has now changed and is shaded by lenders with the requirements to confirm the income being part of the industry the applicant works in. Otherwise, it may not be considered.
Some lenders will consider using the full amounts with a minimum of 6 months history without any additional information being required. Other lenders will need to calculate the annualised year to date from the most recent payslip, separate the base from the additional income, shade the additional income at 80% and then confirm that the income has been received for the two previous years via the group certificates provided.
This income requirement certainly varies from lender to lender and again could be the reason your application gets approved or declined.
This is a big subject in lending at the moment and one that is treated very differently between different lenders. Some lenders will accept it after receiving their first payslip, others require a minimum of six months income and justified by a letter from the employer confirming the minimum hours with a character reference. Some lenders simply will not accept casual income without 12 months history and a group certificate to confirm this.
A Case Study
An applicant that I have dealt with before is a Doctor that has recently received the great news that she has baby number one on the way. She and her partner are currently residing in a small one bedroom apartment and looking to buy their family home. The female applicant receives an income of $108K per annum and her partner has recently relocated from WA and started a new role in Melbourne in April at $62K as an accountant.
Given that she is currently on maternity leave, we have had to look at the lenders that offer the ability to consider her income based on her last payslip, a group certificate, employment contract and a letter from her employer to confirm her return to work date. In addition to this, her husband, although full time, has started a new role and is still on his probationary period.
Taking this into consideration, we had to look at a lender that was going to consider both incomes as we required both to service the loan amount we were applying for.
Factors like a low LVR of 45% as well as history within their industries did naturally assist with the loan being approved, but we succeeded in the getting approval at $800K.
It makes a significant difference in the process and assistance provided when you are dealing with a lender/mortgage broker who has worked in the industry for some time and has worked through many different scenarios with many different lenders. This provides a very broad knowledge with the ability to fit most scenarios with a lender, no matter how complicated it may be.
I have worked in the finance industry for fifteen years, the majority of these as a mortgage broker and, like any industry, I have learnt from my mistakes. This has enabled me to think outside the box and provide a solution for most scenarios.
If you have a tricky or complicated matter that you need assistance with and seem to be hitting brick walls with other mortgage brokers, then head to PropertyInvestingFinance.com and fill in the online questionnaire, and we will make a time to have an in-depth discussion about your situation. Alternatively, you can give me a call any time of 0477 212 840.