Key elements in determining availability of a loan to purchase or refinance residential property are:
- Taxable income of borrowers. Generally lenders suggest our gross income is split three ways:
(a)Loan repayments. Here all existing credit payments, including personal loan repayments ,credit card limits, other property mortgage repayments + planned new mortgage loan repayments, need considering.
(b)Taxation –One’s gross monthly taxable income is included in the loan service affordability calculator ,to determine net taxable income available for loan repayments.
New rental income is also included where borrower is purchasing a property for rental return.
(c)Living Expenses where lenders provide guidelines to borrowers, determined by number of borrowers and number of dependants.
Installing (a) (b) and (c) into the lenders serviceability calculator determines loan amount available.
- Employment History. Stability in borrowers employment is another key determiner of loan availability .Generally lenders like to see two years employment with same employer.If not the situation , lender will consider similar employment with a previous employer within past two years.
- Credit History An adverse current or past credit history will significantly weaken one’s chances particularly if you need to borrow more than 80% of the asset value.
Funding may still be available particularly if self employed as alternative lenders become available all be it at higher interest rates.Generally the number of default’s, the default $$ amount and how long ago,are important here.
- Mortgage Insurance. To secure borrowing greater than 80% of property’s purchase price or valuation(if refinancing) the lenders must submit all borrowers applications to a Mortgage Insurer to have that amount above 80% insured.This means in case of default (a forced sale occurs) the lender is guaranteed 100% return of monies advanced. No mortgage insurance approval here,no loan.
With mortgage insurance it is possible to borrow up to 95%(including allowance for mortgage insurance premium $$ amount).The mortgage insurance premium is charged once only covering the entire loan term.
The above detail highlights relevant information necessary to determine loan amount available and key factors that come into consideration in determining loan approval .