The first time home buyers are often seen in a dilemma while approaching a bank for funding them with loans. They get scared thinking about the complex procedure of getting a home loan. This is basically due to the guidelines, regulations, and laws set by the banks before passing a loan, so as to prevent any fraudulent undertakings. But in reality, applying for a home loan is indeed an easy task. So, if there is someone who wishes to apply for home loan, this is the best time to invest. All he/she needs to follow are the certain guideline which is laid down.
Why do you need a loan?
It is often seen that people within the age group of 25-50 years opt for purchasing car or home, during their job tenure. They look for taking loans which can be repaid within that span. Even small business owners require financial backup before starting their business. Therefore they need personal loans during the initial start-up stage to expand in future.
So given below are certain suggestion that can help an individual while applying for home loan
- Serviceability –
The first difficulty faced by individuals is the loan serviceability. In this, an individual applying for a loan has to convince the lender that he/she is capable of paying it back to the lender. The rates of interest for your borrowing capacity will be calculated between 1.50 – 2 percent on the current average.
- Stable Employment –
The second difficulty is the assurance of holding a stable job and that your income is constant. This is seen in the history of your employment details. But if someone has gone on probation or medical leave then a minimum of 6 months job stability is required. For business holder, lenders usually consider their prospect (growth in business) as income source before sanctioning the loan. A minimum of 2 years of job stability is required for applying for home loan.
- Security –
Security is another issue that can bother a person. If the bank assumes that a person can serve the ongoing loan, then there is a call for the security. Usually, the home purchased is kept as a mortgage for receiving a loan. So the bank will keep all the documents (title deeds) before a person repays the entire loan. This is done because a person can be terminated from his job, or a sudden fatal incident can occur. So under such scenario, if the person is unable to repay the loan, the bank will sell their property and receive the loan amount.
However, it is seen that in Melbourne a 3 BHK apartment can be sold in 3 weeks while in Bourke it can take 3 years. Therefore, it is seen that for a resident the limit for loan-to-value-ratio (property value) is 80% and for others is 60 percent or below.
- Equity / Savings –
Equity is closely associated with savings. This is calculated as the worth of the property and the amount borrowed. But for the ones who have no existing property, for them, their equity is the amount deposited less than cost. Apart from this, there are currently two insurers in Australia who look after the property insurance for 80% or above loans. These insurers are interested in understanding their clients regarding savings. Therefore, individuals who apply for 90% of the loan , must save a minimum of 5% property value. Earlier, people with no savings were granted loans on conditions of a parent who is ready to keep their house as a security deposit in case the borrower fails to repay the loan. Now, it is based on GFC home loans which are given to first home buyers without savings.
Why do people fail to get a loan?
Many times it is seen that the borrower fails to meet these criterions for receiving a sanctioned loan. Besides, there are other factors for rejection as well. A borrower involved in any criminal activity or doesn’t have a clean chit track record is often rejected. Even instability in a job such as frequent job swapping within 2-3 years can debar you from getting a loan. Secondly, the property should satisfy the lender that it’s worth the amount asked for a loan.
Another important reason for declination is the borrower’s credit records. This means that if the individual has applied for multiple loans in the last 1- 2 years, the proposed loan automatically gets rejected. Lastly, failure to disclosure, wherein the individual fails to provide authentic information about his job or doesn’t mention any credit card details.