Part 1. Financial Roadblocks for Home-Loan Applicants

When it comes to home loans, it can be impossible to predict the mind-boggling number of financial obstacles that can evolve into roadblocks and speed bumps just like that...

Over the past three years working the phones in a corporate role advising homeowners, buyers and borrowers, I spoke to many clients who were actively house-hunting?before?they had secured their finance. I always asked them why??

They said, "why not?"

I explained the issue here is finding the perfect property, falling in love, but then risking it if they hit a financial snag which can happen suddenly and swiftly.

What Could Go Wrong?

When it comes to getting a new home loan or refinancing another, many people think they are sitting pretty because they have saved their deposit or have a decent amount of equity in their home—but that's only half the battle. There is so much more to it from every detail of your lifestyle, spending habits, financial behaviour and, ultimately, your ability to service the loan. The smallest and insignificant thing, like a car loan or an out-of-control Credit Card debt, can throw the loan amount right out of whack. Each puzzle piece massively affects the borrowing power outcome and ultimately affects your home budget.

In some instances, clients had approached buyer's agents before being pre-approved, and that's fine, so long as they weren't surprised when they got quizzed about their financial state.

A buyer's agent's job is to help you secure a home. A big part of that is due diligence. They need to ensure that you are viable in every aspect; that means checking your financials are intact (this is very different from advising you). If you don't have a financial solution in place, they will help you find one by referring a broker or home loan specialist. Their goal is to prepare you so that should the perfect property appear, you are bulletproof and ready to pull the trigger. If, however, you have done your own due diligence and sorted out the finance side of things...then it's still useful to get familiar with the language of finance and be prepared for anything that could go wrong...

When your current Bank or Broker can't help

Often clients are still shopping around for pre-approval options while house hunting because their bank or broker can't help them. If that's your situation, then it pays to be cautious. Chances are, if your existing networks can't help you, others won't be able to either! For instance, if your existing broker has said you should save for six more months before applying for the loan" then rather than make assumptions, it pays to get a second opinion from another broker. The buyer's agent can help by referring you to another reputable broker. If their finding reinforces the original broker's advice that you are not yet ready to purchase a home, then at least you are better off than where you were - you have your second opinion, and off you chortle to save for six more months.?

Lack of Visible Savings

The adage that cash is king is undoubtedly true, especially when it comes to the unfathomable amount of hidden and upfront costs, the never-ending fees and the ongoing charges involved in buying a home. If you have access to 'cash' but it is not accessible, then you need to figure out an alternate plan. Cash savings are crucial.

The cash acts as insurance or buffer for those unexpected costs and expenses while waiting for approval for credit products.?A common occurrence often encountered by brokers is when clients mistakenly 'think' cash is available but find it is "tied up" when it comes time to call on it. Cue offshore accounts, stocks, bonds and trust funds. Thus it is crucial for brokers to drill down on the "available cash" question. You may get asked questions like: "where is the money?" and "how long will it take you to shift it?" Followed by, can you put that in writing?

Part of your broker's due diligence is ensuring that you have access to cash. Lenders like to see a proportional amount of cash in the savings account just as much as vendors love a cash buyer. It makes sense, right?

Thanks to the media's obsession with raising interest rates, many people like to "shop around" for finance.

Bridging Finance

If you are relying on bridging finance to secure a home, any broker worth their salt will strongly advise that you apply as soon as possible. Bridging finance is complicated and can be very challenging to get approved. It also attracts higher interest rates than traditional loans. You are advised to speak with your bank or broker sooner rather than later to ensure it is viable.?

Buying & Selling?

If you are in the tricky situation of selling, then buying, and planning to rent until you find the ideal home to buy, there is a question about?what you will do for accommodation during the in-between period should you need it. One likely scenario is a short-to-medium-term rental. Rentals are not cheap, so the extra cost must be budgeted. Consider a $500 per week rental for a family that will cost $2,000 per week or $24,000 p.a. You need to be clear about the difference this will make to your borrowing and purchase power situation.

Exit Fees

If you have an existing fixed loan but want to move banks with a new home loan to get into a better situation, you should first contact your bank and find out the precise details of their Exit Fees. There's a dual benefit for the broker here: First, knowing the amount the lending institute charges is helpful. Second, those who make an effort are high-intent buyers ready for action!

As we said at the beginning, it can be impossible to predict the mind-boggling number of financial obstacles that can evolve into roadblocks and speed bumps just like that, but it's not all doom and gloom; the more you familiarise yourself with the unknowns; the better you will be at preventing them from impacting your home loan potential.

Can we help you with your property needs?

If you want to explore market value, please get in touch. We know the Sydney market well and understand it. If you'd like advice about the property market, whether you want to sell, buy or lease, we're here to help. Email: [email protected]