Getting your next investment property loan approved hinges on your ability to form a win-win alliance with your lender. The first rule of creating a mutually beneficial relationship is to put yourself in the shoes of the other party.
You need to know from their perspective what defines the win. Then, as long as you can deliver what they want, you’re in a likely place to get what you want, too.
I love what Steve McKnight says about getting others to say yes in any negotiation. You simply take away their reasons for saying no. Here are six tips to help you get your next property loan application across the line:
1. Start With The Right Lender
With dozens of lenders in Australia, you certainly have plenty of choices. But, making sure you’re dealing with the right lender will greatly increase your chances of success.
According to an article last month in The Guardian, the Big Four Australian banks account for more than 90 percent of the Australian home loan market. However there is a long list of Australian-owned, as well as foreign banks, building societies and credit unions on the APRA website. Independent lenders, such as Aussie Home Loans and RAMS also provide finance for property purchase.
So, what would make one lender more attractive to you than another? That depends primarily on your situation, as well as the target market of the lending institution. Some banks are willing to take on less risk. They also have high standards of credit worthiness.
Other lenders specialise in dealing with people who have poor credit histories and less certain future income projections. They have somewhat lower standards of credit worthiness, though. It’s up to you to do your homework, so you can match your situation with the right lender.
Alternatively, you can work with a mortgage broker who represents a wide range of lenders. Brokers specialise in matching the most suitable lender and loan product with the borrower. Lenders pay them on commission, so keep in mind that they might be incentivised to offer one loan product over another.
However, this also means that they will be highly motivated to help get your loan approved. Unless you already have an established relationship with your bank, it’s probably wise to start your search with a mortgage broker.
2. Find Your Ideal Loan Product
Not all property loans are the same. They vary in terms and conditions, like interest and loan terms. They also vary in their purposes, such as construction, renovations, or buy and hold investments.
I once obtained finance for a construction loan to build a unit. My Plan A was to develop it, and then sell it for a profit. Construction began just before the GFC, and I could not find a buyer until after construction was finished. Because of the terms of the loan, I could not rent the property until I refinanced, which I did with another bank. In hindsight, my first loan was not the ideal loan product because it did not afford me the freedom to revert to my “plan B.”
Make sure your loan suits the purpose of your investment, and that it also offers some flexibility, in case market conditions force you to change plans mid-course. Ask the following questions to determine whether the loan product fits your purposes:
- What is the LVR requirement of this loan?
- What is the interest rate, and how do they calculate it?
- Am I repaying principal and interest, or interest only?
- When must I repay the loan in full?
- Are there any early pay-off fees?
- Are there any additional fees, like application, valuation, LMI or account-keeping?
- Do they offer equity lines of credit or offset accounts?
- Can I rent out commercial premises with this loan?
3. Work Hard To Prepare A Strong Application
Remember, you’re number one job is to remove the lender’s reasons for saying no. Lenders say no when they believe that you represent a greater credit risk than they are willing to assume. It’s your responsibility to prove them wrong.
Be sure to submit an application to a lender that you think will back you. Be aware of your credit history before preparing your application. You can order a copy from websites like www.mycreditfile.com.au. Many banks will not approve your home loan unless your credit history is squeaky clean. If you’ve missed three months or more of payments on a debt, even a phone or utility bill, that credit report blemish could follow you for as much as seven years.
Your lender will want to see supporting documents to verify your income and credit claims. Be sure to have these ready and available. Steve goes much more in depth on how to present your income in a positive light in our training course.
4. Submit Your Application Through An Insider
Some large banks allow you to submit applications online, or through your local branch without working with a specific individual. In these cases, you are little more than a number. The subjective evaluation of your application isn’t possible in such a scenario.
Submit your application through a person, rather than through an organization or website whenever possible.
This is where your relationship and networking skills come into play. This could be as simple as working with a well-connected mortgage broker, or it could mean working directly with a bank manager in your town.
Either way, you want someone in the lending institution that knows the approval criteria, and will help you present your application in the best way possible.
5. Gain Pre-Approval Before You Need Your Investment Property Loan
Whether you want to strengthen your credit history, network with lending professionals or gain pre-approval for a loan, being proactive before you actually need finance will greatly increase your chances of success.
The pre-approval process allows you to identify and resolve credit and serviceability problems before it’s time to buy a property. It also gives you clarity on your buying budget, because you learn how much you can borrow, based on your financial situation.
Bear in mind that a pre-approval is no guarantee of finance. You still need to go through the formal loan approval process. In the end, you may or may not qualify for the loan amount and terms indicated in the pre-approval. Nonetheless, it’s better than starting from scratch.
6. Stay Engaged With The Approval Process
A loan approval does not happen overnight. Don’t get lazy or shirk your responsibilities while you’re waiting to hear back from the lender. You should actively follow up after you submit your application to ensure it progresses effectively. Be quick to reply with any additional information or supporting documents if they request them.
We’ve only just begun to scratch the surface of how to ensure a yes from your lender. Our Property Apprenticeship course has received national recognition as a Certificate IV in Business and includes four complete sessions on financing an investment property. Here are the titles:
- Session 31: Lending Industry and Applying for a Loan
- Session 32: Lenders and Mortgage Brokers
- Session 33: Dealing with Lenders
- Session 34: Joint Venture – Partnerships
You can learn more about the course here.
Any Comments Or Tips To Share?
What helpful loan approval tips can you share with the PropertyInvesting.com community? Please take a moment to leave your comments below.
To get your property loan approved fast, just remove all of the lender’s reasons for saying no. Here are six tips to get your next finance application across the line.