Demystifying the Credit Process

Applying for a mortgage can at times be confusing and frustrating. Traditionally, lenders have not been particularly good at explaining to customers how loan applications are assessed. They just gather a variety of information and provide a decision.

For this reason, we thought it would be useful to run through how we look at loan applications to help our customers understand the type of things we look at. Openness is one of our core values at QuickDirect and this extends to our mortgage application assessment process.

If you’re early into the house hunting process, it’s a good idea to get your mind around the credit process ahead of time to make sure when you do find the home of your dreams, getting a loan will be as quick and easy as possible.

Understanding Risk

The loan application process is designed to provide us with an assessment of risk. This assessment is important to you as well as us because an incorrect assessment of risk could well result in hardship for both of us.

When we lend money to a customer we focus on four things:

1. Your income & expenses: Is there enough left over to service the loan?Generally, the higher your income, the higher your capacity to borrow.
2. Your contribution to the purchase: Is your contribution, when combined with the mortgage amount, sufficient to cover the purchase price and other costs?Generally, we consider a higher deposit a greater commitment to the property and the repayment of your loan.
3. The value of the property: Is the property worth more than the loan amount?Generally speaking, we will lend up to 80% of the property value without mortgage insurance and up to 100% of the property value with mortgage insurance.
4. Your history: Have you ever missed a payment on a phone bill or another loan? How long have you had your job?Generally, we like you to have been employed in your current role for at least 3 months.

Our five easy step process covers off on all these aspects and is aimed at delivering you with an easy to understand process as well as the confidence that we won’t put you under any undue financial pressure down the track.

Regardless of our process, the most important thing is that you do your budgeting and make sure you are completely comfortable with your ability to meet the obligations associated with your new loan. After all, no one knows your circumstances better than you.

Your Income

The starting point for determining whether we can lend you a particular amount of money is understanding whether you will be able to afford the repayments on the loan. We also like to factor in a buffer to allow for any unforseen change in circumstances. For example, an interest rate rise, a new addition to the family, a change in your job.

We are happy to consider income from various sources but we may treat particular items in different ways. For example, we may only include part of any commissions or bonuses you receive if there is not a long history of such payments. A dedicated Customer Care Consultant will guide you through these aspects once you’ve completed Step 1 of our five easy step process.

Your Expenses

We also like to understand a little bit about your personal situation. This helps us estimate your living expenses and factor in any existing financial obligations you might have. We look at things like whether your application is single or joint, whether you have any kids, your existing credit card limits and so fourth.

Again, you should do your own budgeting as you know your own circumstances best. The main thing is to make sure that after taking into account your existing expenses you have sufficient income remaining to meet payments on your new loan. You should also allow a buffer to ensure you’re covered if circumstances change.

Your Contribution to the Purchase

Come settlement day, we need to ensure that there are sufficient funds to cover the purchase of the property along with other costs. Costs to take into account include government fees and charges such as stamp duty along with out of pocket expenses such as mortgage insurance, legal fees and so fourth. To get a better sense of these costs click here.

The Value of the Property

Your property represents our fall back position if for whatever reason you are unable to meet your loan repayments for an extended period of time. Generally speaking, we will lend up to 80 percent of the property value without mortgage insurance and up to 100 percent of the property value with mortgage insurance. Mortgage insurance protects us in the event that you default and your loan exceeds the value of the property you’ve offered as security.

Usually we arrange an independent valuation of your property be conducted prior to formally approving your loan.

Your History

We like to understand a bit about your history to help give us the confidence that you will meet your repayment obligations (provided your income allows). We may look at things like:

• Your previous loan history: Have you met all your obligations on time?
• Your savings history: How committed have you been to your objective of owning a home?
• Your credit agency report: Have you defaulted on any bills or loans in the past?
• Your employment history: Have you been with your current employer or in the same industry for a long time?

All these factors assist us in making a decision. It’s a good idea to think about these things ahead of time to make sure when you do find the home of your dreams, getting a loan will be quick and easy.