How a lender assesses your loan
There’s a basic process that all lenders follow in assessing your application, understanding this can get you in a better position for an approval.
The three c’s of credit sit behind every approval decision:
Capacity: Your ability to repay the loan based on your income and non-negotiable expenses like other repayments, food and transport. Lenders are looking for consistent ongoing income on at least a monthly basis. A portion of income like overtime and bonuses that are paid regularly can be included, but if your bonus is paid annually the lender will be less comfortable. Higher duties allowances or income which isn’t expected to be ongoing also are excluded. To improve your capacity reduce credit card limits, pay off small debts and gather evidence of your allowances and overtime being consistently paid for a period of time. Oh hey, could you ask for a raise too….?
Collateral: How much cash you have up front. Otherwise known as hurt money, skin in the game… technical speak. Basically the deposit you have towards a property purchase or the equity you have in the home. All aimed to reduce the risk to the lender. Collateral also covers the type of property that you want to buy, and it’s ability to be readily sold if it comes to that. Unusual properties or those negative features impact a lenders ability to quickly sell the home if you default. By the way, I’m aware none of us ever intend to default but the lenders have to treat everyone based on the potential that this could occur.
Finally, Character: you. A stable history in your home and job is desirable. As is a good credit history of course. If your expenses outweigh your assets or you’re not in a suitable position relative to your age it raises questions.
Behind, or should I say underlying all of this is a credit scoring system which is computer automated and adds points for key criteria, not every lender uses this system though and there are good borrowers who can benefit from a broker knowing which lenders look at a loan for it’s merits.
Western Weekender article https://issuu.com/weekenderpenrith/docs/propertyoct21/38
