March 10, 2017
There are a few factors that a lender will considers to be high risk when you put in a loan application. However, knowing what these are in advance allows you to get your loan approved faster without any unnecessary hiccups. So, what are the most common factors that deter a lender from granting home loan approval?
Primarily a lender will consider the amount you’re borrowing, your ability to repay the loan and any other existing debts. Therefore, if you’re looking to borrow too much or only had a job for a short time, then your loan may be declined. Plus, having high levels of debt such as credit cards, personal loans and vehicle finance will deter a lender. To avoid this situation, wait until you’ve been in your job for longer before applying for a loan. Also, look at borrowing a more realistic amount, and paying off your credit cards and other loans.
When a lender considers your home loan application they will want to know what property you’re looking to purchase. At this time, they will estimate a property resale value and assess resale time if you default on your loan. This risk is the property risk, rather than borrower risk as with your financial and personal situation.
Subsequently, there are a range of properties that a lender considers as risk. These include the following:
Under 50m2 – A small property that is under 50m2 is risky because it’s small and won’t appeal to most buyers. As a result, it is harder for a lender to sell.
High rise and density apartments – These properties look the same and are in the same area, so a lender considers these as risky. Additionally, the resale value of the property is not as high as a unique property. Plus, the return on investment may not be as high if the market is flood with the same properties.
Off-the-plan developments – Designing, selling, and then building off-the-plan takes years. Thus, lenders tend to study the developer of the property, and if they can complete the development. Accordingly, you may need to present more documentation for these properties and do more research to ensure a sound purchase.
Serviced apartments – While the idea of a serviced apartment sounds appealing to some, it’s not everyone’s ideal home. In addition, occupancy of these apartments is short-term with a higher turnover. Furthermore, a company manages the property, and these involve fixed-term contracts. These contracts can limit the use of property, and you’re also reliant on another company to carry out property maintenance. All of these factors deter a lender.
Student housing – Student properties are very similar to serviced apartments, plus student housing has limited uses. Moreover, these apartments are compact, and often have shared facilities. Once again making them difficult to resell.
Where a property is located is profound for a lender. Properties found in high-risk postcodes, such as rural areas, mining towns and on islands are difficult to sell. Lenders also avoid CBDs due to an oversupply of developments, where property construction levels at the same time are high. Properties situated in flood zones and high-crime areas are also risky due to these properties being far less attractive to a potential buyer.
Written by Refinancing.com.au
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