The other day we had a loan application that came to a grinding halt because of multiple 2 and 3 cent overdrawn amounts on their transaction (‘everyday spending’) account.
This may seem ridiculous, but the banks thinking is that if you can’t manage 3 cents, how on earth would you be able to manage half a million dollars?
This isn’t the first time this has happened so I thought I would put my 2 cents worth in and remind you that your credit history and conduct on your current accounts is the gold standard when it comes to property finance.
One day is a day too late
Another client was $2 late on their rates bill, and another was a day late on a mortgage repayment. Each late payment had a seemingly valid reason and were not a deliberate act, however these infractions were deemed ineligible for finance*.
Fortunately, we have contingencies in place and can most often catch these stumbles before we submit the loan, but this can hold up the process (for up to 6 months or more) which may put your chosen property purchase in jeopardy.
*When I say ‘finance’ I mean a ‘normal’ home loan. There are lenders out there that will give you a home loan even if you have late payments, however the interest rates and fees can be exorbitant.
The banks not only look at your serviceability (do you have enough disposable income to support the new loan) and your equity, banks are also looking at your “financial character”.
The conduct on your current facilities plays a huge role in determining your financial character.
What is Comprehensive Credit Reporting?
The lending institution will consider you a reliable customer if ALL your financial obligations are paid on time regardless of your circumstances, innocent or not. Even missing a day or two on your phone and/or utilities bills may be reported to Equifax (formerly VEDA) and added to your credit report in a new section of your credit file. This is called Comprehensive Credit Reporting (CCR). CCR will affect your credit-score. Generally speaking, the higher your score, the easier you would be approved for a loan. The lower your score, the harder it might be to get a loan.
See a red flag?
It’s a good idea to keep an eye on your credit report and if there are any red flags or problems, see if you can address these before you apply for a loan. If all you see are red flags, don’t give up, and whatever you do, don’t bury your head in the sand! This is just a sign that it is time for you to drop us a line. We are here to help and will happily steer you in the right direction.
If any of these scenarios resonate with you (or is you) then thank you. It helps us to help others traverse these molehills that are made mountainous by lender criteria.