Do These 6 Things Before Applying For a Mortgage
If you’re looking to invest in property, you’re going to likely need to get a mortgage. And if you’re going to need to get a mortgage, you’re going to need to present your finances to the bank in a way that they’re happy to lend you money. And today, I have with me Michael Brown from mortgagebrokersydney.com.au. And he was telling me that he spends so much of his time coaching people and things that they need to do to get their finances in order so that they can get a loan, I thought that would be a great thing to talk about to help everyone out there who’s looking at getting a mortgage.
Contact Michael – https://mortgagebrokersydney.com.au
0:00 – Introduction
1:07 – Have your documentation
3:10 – Explanations for expenses
4:53 – Regular savings pattern + frugal living
7:19 – Reducing your debt + making debt repayments
8:35 – Reducing credit card limit
12:23 – Get a copy of your credit report
15:45 – What point should you engage a mortgage broker
19:15 – Benefits of using a mortgage broker
If you’re looking to invest in property, you’re going to likely need to get a mortgage. And if you’re going to need to get a mortgage, you’re going to need to present your finances to the bank in a way that they’re happy to lend you money. And today, I have with me Michael Brown from mortgage broker sydney.com.au. And he was telling me that he spends so much of his time coaching people and things that they need to do to get their finances in order so that they can get a loan, I thought that would be a great thing to talk about to help everyone out there who’s looking at getting a mortgage. So hey, Michael, thanks for coming on today. You know, Ron,
good to be here.
Okay, so let’s just say someone’s looking at investing in property, maybe they’ve got their deposit at the moment. Generally, I think most people would just be like, Okay, I’m just going to go to the bank and apply for a mortgage straight off the bat or speak to a mortgage broker. But there’s a lot of things that they can do to help set them up for success before even getting to that point, or if they’re in the process of saving their deposit isn’t
that they absolutely is. And and, and that will just make it much, much easier. Firstly, for them, and then for the the broker and the bank to approve their loan.
Okay, so what are some of these things that people need to be aware of or need to start doing before they apply for a loan?
Well, there’s obviously some basics, you can have all of your documentation, you would be surprised how difficult it is for sometimes for me, literally just to get you to send me the information that I need. Now, I know that sounds like basic housekeeping, but your life is going to be easier if you’ve got some basic things ready.
What documentation are we talking about here? Ah, I
think I’ll go through a really brief list. But if nothing else, you could have your payslips ready. Sounds basic, but you’d be surprised how many people can’t find them. If you’re self employed, really big one have done your tax return, that lots and lots of people who are self employed a front front up with their their tax return from last year or two years ago. And, and sometimes that’s enough, but at the moment, you’ll find that, particularly after we’ve, so we’ve worked our way through the pandemic, self employed, people really need to have their June 2020 tax returns done. The banks are really big on having as much current information as they can. And for a self employed person, a June 19 tax return isn’t gonna cut it.
Yeah, especially with all the changes that have happened in 2020. With COVID. Like, just because you have this much in 2019, that does not have any correlation to what you may have earned in 2020.
That is absolutely the case. So that that there just a couple of simple the simple documentation, the rest of them in terms of documentary requirements, and things like knowing where you can get all of your statements, and making sure that you’ve got copies of, you know, contracts, the rental assessment for the place that you’re going to buy all of those things. I know they they’re basic, but they’re all things that we need. But the things that you can really do is just make sure that you’re you are actually you have everything in order things like your expenditure. Have you have you been? Do you have anything unusual? That’s gone in the last three months? If you do at the moment, you’re probably still going to have to have a basic explanation for it. So
So how far did the banks go back when looking at your expenditure?
That’s a really good question and different rules for different banks. It’s not going to be any further than three months. And it could be as little as one at the moment, as we have, as we’ve seen over the last little while some of those more onerous, investigative procedures are starting to ease a little bit. So
that’s really pointing Why did you buy a coffee? Why did you buy two coffees on Wednesday instead of one?
Well, there’s the famous case, certainly that I’ve seen where the individual concerned was being questioned why he ate a cabana coffee every lunchtime. Now, admittedly, it was because he spent he said that he only spent something like $50 a week entirely on food and had managed to spend $60 just on his lunches. But nonetheless, that’s sort of in you know, the level of investigation that we were seeing, and we’re not we’re not seeing that now. But if you’ve got big things that you’ve that you’ve seen going out, you know, like a $2,000 payment or an $8,000 payment, you should be prepared to explain exactly what that is. And it’s not necessarily because your broker’s fantastically invested in your lifestyle, they just want to be able to put the best case for you forward.
So ideally, if someone’s looking at investing in the near future, it’s it’s kind of like okay, you want to live frugally for the next three months. Ideally, if banks are gonna look back that far. So then when they look at your statement, they look at your expenses. They say, Okay, this is a frugal person, their expenses are extremely high. And they assess you based off that, versus if you spend three months living it up, and you know, buying things, obviously Christmas could be an issue for people.
Unknown Speaker 5:17
we’re not, we’re not the banks are not completely unreasonable, although we might think they are sometimes. And we do understand that Christmas is a seasonal thing, and that they, you know, there is a level of, shall we say, one off per annum expenditure there. But you certainly don’t want to go and living the life of Riley for the three months immediately before you’re going to buy. The other really big thing that you can do really, to help yourself is have some kind of regular savings patent. If you’re asking a bank to agree that you can afford to pay $1,000 a month towards a loan, on top of the rent that you might earn as an investor, it’d be pretty handy for your case, to have shown that for the last three to six months, you’ve been saving $1,000 a month makes it a lot easier. If you if you have if you’ve been saving a grand total of $10 a month might be a bit of a stretch certainly going to be harder.
Yeah. So it’s just something like that regular Savings Plan, which I talk about on this channel all the time is pay yourself first. So as soon as you get paid, put a percentage of that money or a set dollar amount. Put it aside before you do anything else before you pay your rent or live your life or anything it’s like straightaway, save it. So if you know that your mortgage is going to repayments are going to be around about X amount, you can show that you’ve been saving that money.
It’s a pretty powerful, pretty powerful positive for your case, if you’ve got if you’ve got the two things covered, which is the rental for the place that you live in, because we all have to actually live and you’ve got some savings on on a monthly basis as well, you know, for your future loan, yeah, then you, you starting to be a pretty safe bit. And you don’t want to just for the last two months, ideally, the longer you can have it the better but certainly three to six months. And that really does help your cause.
Yeah, and what about like debt reduction, paying off credit cards, or having car loans is that sort of stuff going to stop people from getting a loan or just make it more difficult?
Well, it’s not going to stop you in any way those things. In some ways they help you, but because they can they they do show that you’re, you know, a person of good character, they show that you’ve got the inclination to make monthly repayments and to make them all of the time. So they’re all really good things. The one, the one thing that they do do to your detriment, however, is they reduce your borrowing capacity. If you’ve got, you know, if the bank assesses that you’ve only got a total of $4,000 a month that you can spend on loan repayments, and you’re already spending $1,000 of it on a car, then you can only afford to borrow three quarters of what you would otherwise have been able to borrow. Yeah. So that doesn’t mean that it’s a bad thing, as long as it’s not going to stop you from buying the investment property that you wanted to buy.
Yeah, and a mortgage broker, if you speak to a mortgage broker, they can kind of look at that stuff and tell you, you know, if you were to get rid of this debt, your borrowing capacity would be x
versus if you have it, I spend so much time giving people guidance on that, you know, look at, do you really need your $30,000 credit card, because on a home loan basis, it probably equals something like $200,000 worth of home loan lending, maybe you could get by on a credit card of $5,000. And all of a sudden, without really doing too much, you’ve freed up this massive capacity.
So you’re saying that, like capacity of the credit card is more important than how much you actually don’t want it
all We are always having that discussion. All banks assess on the basis of the limit, not the actual debt.
Yeah. Which people might be like, well, I pay off my credit card every single month, but the banks looking like, okay, in theory, you could max out that credit card if you wanted to, and you couldn’t have it fully maxed out at 30 grand or whatever it is, and then you’re gonna have to pay that which means you might not be able to pay us so they’re looking at that.
Absolutely right. They you can go and do. You can go and take that 30 grand out tomorrow. It doesn’t require any assessment. It doesn’t require any approval, all of that already been granted. So that’s why they assess on limit. It’s, and there are certainly plenty of people who pay it off every month and given credit card rates. We would support wholeheartedly that arrangement, but they’re still going to assess on the basis of what you could take not on what you do take
yeah and so for people I guess they could look at what do they want to do in that situation? Do they want to leave it? Could they just reduce it and get away with less, as you said, especially, they’re one of those people who likes to take advantage of points and everything like that, or can you just get rid of it completely,
just in time, don’t forget, Ryan, it’s only it’s only for what the duration of essentially, while you actually apply for your home loan, if you feel that you’re able to manage that, once you’ve got your new loan, there’s nothing preventing you with going and asking for the credit card provider, subsequently increase that limit later on. I’m not saying that you should do it, but there’s nothing preventing you from doing so.
However, get your loan and you’ve purchased the property.
Yeah, if you’re, you know, if you’ve got if you’re, if you’ve got, if you’re six months in, and you’ve realized that the rentals coming in, you’re, you know, you’re stable in terms of what your expenditure is, and you’ve got a handle on how that’s going. no reason why you can’t go and get your credit card, increase BAC might not go to 30 might go to something a little bit less. But it doesn’t stop you from doing it for the entire time that you’ve got your investment line, it but it really does make a difference where at the time that you’re applying
your I guess it’s good for people to see that to say, Okay, if they’re having trouble making that decision, you can say, well, it’s not a forever decision, you know, you can bump it up later, if you want to, I don’t have credit cards myself. So it’s not something that I would write about, but some people out there might be concerned.
Look, I’ve had, you know, I think the most number of the highest level of credit card that I’ve ever seen was $120,000 across several different cards. But there’s no compulsion for you to actually reduce it either. It’s just simply a matter of if I’m saying to you, you can only afford a loan of $500,000 if you keep this credit card, or you can have a loan of 750. If you change the limit, then it’s at least your choice.
Yeah, and what if someone’s only needs to borrow 400,000? In that particular case, that doesn’t really matter?
Doesn’t matter at all. It’s just a matter then if it affects the decisions you’re making, if you are going to buy a one better or to better for example, then probably not so hard to decide to reduce your credit card for a little while.
Yeah. Is there anything else that we haven’t covered? We talked about documentation getting that ready payslips taxes that turns up today know where to get your statements talked about being like having your expenditure?
Look, there is one last thing that we don’t see clients do all the time. But if you’re one of these people, that’s well worthwhile. And that is getting a copy of your credit report before you actually apply. We don’t really we being me, first of all, and then the banks, no one likes surprises. So if you think that there’s any reason why there’s some kind of mark on your credit report, it is absolutely in your interests to make sure that is disclosed beforehand. Because every bank does a credit check on you at the time of application. And it is much worse for them to come back to me and say, Look, Ryan’s got four late payments on his credit card. Then for me to explain when I lodge on Ryan’s behalf, why he had four late payments on his credit card and that the bank will find it. I can’t tell you how much different how differently the bank will approach that if we declare it up front, rather than them telling us about it after we’ve already had put the application in?
Well, that’s the thing the bank’s gonna find it anyway. Correct. So they’re gonna, most of us wouldn’t even know what’s on our credit report, like I would not know what is on my credit report? Or who’s put it on there. Or
look at that. That is another thing. I think that at least at some stage, everyone should get a copy of it. You can get it free. You don’t it doesn’t cost you anything to do. So where do
you go from?
There are various agencies. Equifax is essentially an easy place. But there are three or four different places that you can get it and literally searching on the net will produce at least three options for you. Don’t get me wrong, if you want it today, you’ll have to pay for it. If you’ve prepared to wait for the 10 days. Yeah, then you’ll get it for free.
Well, that’s thing hopefully people are you know, looking at this a month out three months out starting to get ready to get their home line.
Exactly. And and as we said, and I think the really key point here that you highlighted is the bank is going to find out anyway because they are going to run this on 100% of occasions. So if you know that there is you know, a black mark from energy Australia because you didn’t pay your electricity bill. You’re the path to approval is so much easier if you go in with all of that information at the start then if you’re trying to explain why you’ve been a naughty boy
There’s probably some marks on mine, I’m sure like just forgetting to pay something on time, and then you know, you get your late notice and then you pay it.
Look, a credit report doesn’t generally punish you until you kind of ignore it for more than a month. You know, like, if you forget to pay your electricity bill on the fifth of December, and then you paid in January, generally speaking, that’s not going to appear on your credit report. If you would you to pay it on the fifth of December and you haven’t paid it by May next year, you might be in a little bit of strife.
Fair enough? Well, that’s a really good tips for people who are out there looking to get a loan, what about, at what point in the process to someone, engage a mortgage broker, like yourself, or go to their bank to talk about, you know, getting pre approval for a loan and stuff like that?
Look, as soon as you think about it, I would recommend? Well, I always find that the earlier people talk to me in this process, the better the outcome for exactly the reasons that we’ve just discussed. Now, whether or not you know, your, your friendly personal lender at the local bank takes quite such a long view, I really can’t say, but certainly, I’m more than happy to have the conversation as a concept. And then we usually put it away for, you know, two to maybe as much as six months, in one case, seven years. Till people you know, are either ready in themselves to take the step to commit to it, or they need to undertake some of the things that we’ve spoken about to get themselves ready. But if we, if you’ve had that discussion, as a concept, this is what I’m going to do, then at least you can be, you know, in a position where you’ve got the information from the professional to be able to tell you what you need, and you can arrange your affairs accordingly.
Yeah, well, and I found as a self employed person, and someone who runs their own business, you can’t just use a mortgage calculator online to try and work out how much can I borrow, there’s definitely more complex things with that, and talking to a mortgage broker, they can at least guide you on, okay, here’s the things you need to have in order or here’s where your income needs to be at to borrow the amount that you need to borrow. And so you can plan your income or plan your expenses accordingly. With that, and it can help. Like, I feel like someone like me who’s kind of got a fluctuating income, because at the top of my business, it’s I need to engage a mortgage broker a lot earlier, than someone who’s just got a regular pay cycle works in a job has been employed there for years.
I would agree with that. But I would also say, look, we all like to think that we’re normal. And I suppose we all like to think that we’re unique as well. But what I would say is that there are so many applications that people assume is just run of the mill, and because of one little issue that they have becomes a real niche borrowing, and so that we need to find the right institution that fits them. And and again, the earlier that you have that conversation, the better. You know, there are all sorts of things. Am I on probation? Is it like if I just changed jobs? That doesn’t preclude you from getting a loan at all. But it might mean that you can’t necessarily go to this particular bank when you thought that you could, or even your own bank, depending upon the rules. And so what we find is that, to marry your circumstance to the appropriate institution, is just easier, the more leeway or you know, lead time that we have.
Yeah. And that can be one of the issues with people just going to their own bank, rather than speaking to a mortgage broker is that their bank might have a particular rule that kind of excludes them or really limits their borrowing capacity. And if they’re just getting that one banks opinion, say no, you can’t borrow. A lot of people would give up at that and say, Oh, I can’t get a house loan. I can’t buy a property.
I have literally just completed a loan. And I do understand I’m I’m a little bit boss, given the amibroker of indeed, I’ve just completed a line. It’s settled last Friday. His own bank said that you can’t have a line. And I looked at his circumstances and I was quite mystified as to why they came to that conclusion that we I put it forward to him that I thought absolutely that he could do what he wanted to do now if he was prepared to Make a very a couple of very minor changes in how we looked at it. And sure enough, that proved to be the case. And so he got his money, not from his own bank, who had told him that he simply couldn’t do it. And that, I think, possibly, as you say, is a real benefit of having someone independent from your own bank. Look at your circumstance, you just get, you get the breadth of the industry, rather than just the single solitary view of your own your own institution, totally.
And so if people want to get in contact with you to talk about potentially getting a mortgage or investing in property, and how much can they borrow, what’s the best way they can do that?
Look, the easiest way to do that is to go to our website, mortgage broker sydney.com.au. And you could either submit online or though we’ve got a phone number there that you can get in contact with us, and then we’d be more than happy to help you
and you specifically people in Sydney, or do you work kind of all over?
Look at the moment I have a client in Saudi Arabia, so I think we can safely say that we’re working all over.
Okay, cool. So there you go. Go to mortgagebrokersydney.com.au to check out more about Michael and his team and get in contact with them if you’re interested. Thank you so much, Michael, for coming on today. And sharing your knowledge. It’s been so valuable to everyone listening to this. And thank you so much for tuning in. Until next time, stay positive