How to get the bank to approve your home loan

Getting a home loan can be tricky, especially if you don’t fit into a lender’s standard borrower profile. Here we will cover the options available for your situation and show you how to optimise your home loan application to improve your chances of approval.

Working out which loan is right for you, whether it’s a first home or an investment property can be overwhelming. With hundreds of home loan options available from various lenders it can be difficult sifting through to find one that suits your needs, especially if you fall outside the standard “full time, 9 – 5 worker” or “double income” stereotypes. This is where a broker can be extremely useful, helping you find options that suit your circumstances and aren’t always offered by the big banks.

Read on for tips on:

• How to get a home loan if you’re self-employed
• Which lenders will take your bonuses into account
• What to do if you’ve just changed jobs
• Awkward income situations
• What to do when you’ve got a credit default
• What to do in awkward residency situations
• How to get a loan when you have a high loan to value ratio
• How to get a home loan with a self managed super fund

Self-employed

Being self-employed can be great. You might earn more in your own business than you did in your job, have flexible work options or have more income options, but the bank oftens sees you as high risk.

How to convince a bank you’re a safe bet if self-employed

One trick is to have at least two years worth of financials to be considered for a traditional loan. This means an ABN for at least two years and two years worth of tax statements. This can be a lot of paperwork, especially if you have different companies and trusts set up.

The good news for self-employed people is the overall amount lenders view is different to what you view as your salary. For example, if you draw $60,000 as a salary from the business, but the business also made profit of $100,000 on top of that, most lenders view your income as $160,000.

Lenders also typically take into account depreciation, although cars are usually exempt from this. This means, for tools of the business, those expenses can be added back onto your income as well.

At this point, the self-employed status isn’t looking too bad, is it?

This is great, however, lenders also typically average out the income across two year periods, provided the more recent year is higher. If you made a loss of $50,000 in your first year, then profit of $100,000 plus your wage the second year, the bank views your income as $55,000pa. (-$50,000 + $160,000 = $110,000. Divide $110,000 by 2 for the 2 years = $55,000).

Another issue is lenders want consistency of income. So in the above scenario, if you made a loss one year, then profit the next with a huge difference, it raises queries with lenders. They tend to prefer less than 20% variance in income. Some lenders will automatically say no, where others will take the lower figure or some will take the lower figure and add 20%.

See how different it can be? This is why it can be so confusing and it’s important to check your options. Just because one lender is a flat out no, doesn’t mean all are! A broker can help you sort through this and suggest lenders who will lender to you.

ANZ is one lender who will ask for just one year of financials within the last two years. This means, with the above example, they will base it on the more profitable year. However, a two year ABN requirement is still essential.

Top tips to secure a home loan when self employed:
– Not all lenders are the same. Many have options for people who are self-employed.
– Have an ABN for at least two years.
– Get your finances in order.
– Make sure all tax is up to date.
– Speak with a broker to find the right option for your circumstances.

Recently changed jobs

You’ve just landed a great job with a much higher pay. Now is the time to invest that extra income with a new property, right? You might be ready to invest but lenders are often wary of people who recently changed jobs though.

How to get a home loan if you recently changed jobs

Congratulations on the new job! It’s an exciting period for you. It’s wonderful to be making more money in a career you want, but lenders are generally only concerned about whether you’re going to stick it out and keep that income.

One trick, wait until probation is up. Most new jobs come with a probation period of 3 to 6 months and in some cases, as long as 12 months. If you are in an occupation such as teaching where moving employers regularly is not uncommon, it can cause some issues.

However, there are some exceptions: some lenders will waive the probationary requirement if you are moving to a new role within the same industry. They usually prefer at least two years in the same industry or a similar role for this to work and it often only applies for loans up to 80% LVR. NAB is one bank that offers this and Commonwealth Bank will usually consider applications who have been in a new role for three months, even if still on probation.

Top tips to secure a home loan when you’ve recently changed jobs:
– Play the loyalty card if you have stayed in the same industry.

– Disclose your occupation. Some occupations such as teaching or medical jobs have special exemptions or options with lenders.
– Wait out the probation period or look for a lender who will waive it.
– Use a broker to find lenders who have options suitable for you.

Awkward income situations

The stereotype of working a full-time 9 – 5 isn’t so accurate anymore. That regular, stable weekly or monthly income has been replaced by many roles which offer a small base income but great bonuses, commissions or overtime. Many part-time or casual workers have more than one job, add that to commissions or bonuses and you have a mix of income, at varying rates and from various sources. How can you make sure lenders take into account every cent?
How to get a home loan if you work part-time, casually or rely on commissions, bonuses and overtime

The first step is to prove consistency. The lender wants to know your income is reliable and you will be able to repay the loan. Use all the proof you can such as payslips from each occupation, tax returns and bank statements which show your income and prove it is consistent over a period of time.

The next step is longevity. The longer you have been in a role or have been receiving commission, the easier it is to prove consistency and that the income will continue once you secure the loan.

Casual workers: Many lenders will only lend to you if you’ve been in your casual role for over a year. However, if you can prove consistent income, it can be negotiable.

Commission-based pay: 100% of commission payments are accepted by most banks, as long as it’s consistently paid over a period of several months.

Bonuses: Some lenders will only count 50% of bonuses, others will count 100%. Policies differ from lender to lender. CBA will usually count 100% of bonus income, as long as it’s regular.

Overtime: Similar to commission, some lenders will only count 50% of overtime income, others 100%. This is also industry-specific. For example, jobs such as nursing or emergency services where income often relies on overtime or work out of regular hours, may find banks automatically take into account 100% of income. However, lenders may require this to be a condition of employment, with evidence in the form of a letter from the employer.

Part-time incomes: Having one job is easy as all lenders will take 100% of the income of the job you declare first. If you have more than one job some lenders will allow 100% of the income, some include only 80% and some allow only 50%. It is important you list your highest paying job first and the rest in order of highest to lowest. Doing it this way ensure whichever lender you go with, you will have your income taken at the highest rate they allow.

Rental income: All lenders accept rental income as income for home loan applications, how much varies from lender to lender. 75 – 80% is standard.

Dividend Income: With dividend income from shares, many lenders will not take into account capital gain (this is also the case with property). Instead, you are usually required to show two years worth of statements with dividend income.

Top tips for securing a home loan when you work casually, part-time or rely on commission, bonuses, overtime and other income:
– Prove consistency with your incomes.
– Have all your proof including bank statements, pay slips and tax returns to prove consistency and longevity of your income.
– List your income from highest to lowest paying to ensure the maximum amount is included.
– List all income including salary, commission, bonuses, overtime, rental income, share dividends and any other income source you have.

Credit defaults

Having a credit default is not the end of the world when it comes to home loan applications. While it can make things trickier, it’s not impossible to secure a loan.

How to secure a home loan if you have credit defaults:

The first thing to assess is the kind of defaults you have. A default that is a few years old and under $1,000 is not the same as a recent fault worth $10,000. A small default from a few years ago, combined with a large deposit is sometimes enough to secure a home loan.

Check your credit file. Knowing you have a default and doing what you can to fix it is much better than applying and finding out there is a default against your name so you get rejected. Order your credit report, check for any defaults, pay outstanding ones and clean up your credit file as much as possible.

Be transparent. When you apply for a home loan, if you know of any defaults, disclose them. Being upfront about what it was, when, where and why the default happened, as well as ensuring it is paid off will help your application.

Choose a different lender. If you have a default with one lender, they are unlikely to approve you for a home loan or any other loan again. Instead, go with a different lender to increase your chances.


Top tips to secure a home loan with a credit default:
– Know your defaults by ordering and reviewing your credit file.
– Fix anything on your credit file.
– Be upfront about any defaults.
– Choose a different lender.

Awkward residency situations

With remote work options making it easier than ever to live and work anywhere, many Australians might find themselves in an awkward residency situation as far as lenders are concerned. For example, recently moving to Australia, being an Australian national living and working overseas or recently returning to Australia can all pose issues when getting a home loan.

How to get a home loan even if you are new to Australia or living overseas

Australian expats have it easiest. Most of the major lenders will lend to Aussies overseas, as long as you’re buying property in Australia. You won’t be able to get a home loan in Australia to buy a property overseas. Most lenders will lend to 80%, but ANZ and St George will lend above 80% to expats, according to our brokers.

Some banks will also provide loans for foreign nationals living overseas who are looking to buy in Australia – notably St George and Citibank. However, any foreign national will need to obtain approval from the Foreign Investment Review Board before purchasing, and are typically restricted to only being able to buy a home or new property.

If you are a foreign national residing in Australia, it’s a little harder. If you’re a permanent resident, there’s usually no problem. You’ll be considered under a lender’s standard policies in the same way an Australian citizen is. However, if you’re a temporary resident – say, for example, you’re being sponsored to be in the country by an employer – then you may have issues getting a lender to even consider you. Of those that will, few will lend more than 70% of the value of a property. On top of this, you’ll also have to qualify for FIRB approval to buy a property as per foreign nationals overseas.

There are some lenders who will consider temporary residents, for example, St George. The bank has an entire department devoted to non-residents and will lend up to 80% LVR to temporary residents or up to 90% to Aussie expats.

You can get around these restrictions if you’re buying a property with an Australian national. You can be a co-applicant on the loan without a problem. So, joint ventures and buying with a partner are both distinct possibilities for the temporary resident looking to invest in Australian property. Ensure you both get legal and financial advice before purchasing property together.


Top tips for getting a home loan when new to Australia or as an Aussie expat:
– Have a 20% deposit.
– Compare lenders, some will lend more than others.
– Co-sign with an Australian national where possible.

High LVR situations

With the average Australian property price sitting at $679,100 according to the Australian Bureau of Statistics June Quarter 2017 figures, more Australians are getting loans which are more than 80% of the property value. Doing this usually incurs LMI (Lenders Mortgage Insurance), however, there are ways around it.

How to get a loan with a high Loan to Value Ratio

Generally, the highest loan you can get is 95% with the cost of LMI added to your loan, bumping it to around 97%. To get a loan like this, you will need a deposit of at least 5% in cash, equity or shares.

This will need to be considered ‘genuine savings’ so it will need to have been in your account for at least three months. Some lenders waive the genuine savings requirement while still in the ‘LMI zone’ if you have a larger deposit, including Homeside (10% deposit) and CBA (15% deposit).

The cost of LMI can vary dramatically depending on the size of the loan, the LVR and the underlying LMI provider (usually Genworth or QBE). ING DIRECT also runs an offer called a ‘reduced equity fee’ or REF, which sees ING DIRECT take the commercial risk for loans under $800,000 up to 95%, depending on a number of conditions – one of which is that the main applicant has been in their current employment for two years.

Despite this, there are a few tricks which can help you. Usually, when you apply for a high-LVR loan, the mortgage insurer has to approve your application as well – and their criteria is usually stricter than the lenders.

However, some banks have something called ‘delegated authority’, which allows them to sign off loans without referring back to the insurer under a certain LVR (such as 90%) or under a certain amount (eg $1m) as long as the borrower has a clean credit record. That can be advantageous for the borrower, as the lender may be more accepting of elements of applications that an insurer would frown upon.

Generally the big four banks have this facility, but it changes from time to time. Our expert brokers said CBA has a delegated authority from its insurer, Genworth, and CBA confirms Genworth accepts its credit policy for insured loans up to an aggregated debt of $1m. There are other factors which fall outside of this dollar ceiling, such as no arms-length transactions, default history and security impediments.

If you already own investment properties, it may be worth applying for a loan with a lender that uses Genworth, rather than QBE, as Genworth is more forgiving when it comes to existing debt – especially if it’s negatively geared. Commonwealth Bank exclusively uses Genworth as do NAB; other smaller lenders often use both Genworth and QBE, and you can nominate which mortgage insurer you’d prefer to use (normally a broker would do this for you).

Bear in mind if you make more than one application and you go to two lenders who use the same insurer, you’ll more than likely get the same outcome. Plus, each application goes on your credit file.

SMSFs

When looking to retirement, an increasingly popular option is buying a property through a self-managed super fund (SMSF). It’s seen as a simple and often tax-effective solution for taking control of your retirement income. However, the process of financing a property purchase is anything but simple.
How to get a home loan for a self-managed super fund

Ensure your SMSF is correctly structured and able to service the loan. This is the most important element for getting a home loan through your SMSF.

You need to ensure your SMSF is compliant for borrowing and is allowed to invest in property. You’ll also need to set up a trust which will directly own the property on behalf of the SMSF.

Most of the major lenders now provide an SMSF loan, as do more and more mortgage managers. However, there are often LVR restrictions on loans of around 70%. St George will lend up to 80% of a property value if the SMSF trustee is a company; if the trustee is a person, it will only lend 72%.

Lenders also assess the serviceability of the SMSF, not the beneficiary. Therefore you need enough contributions, including rent from the property, going into the fund to be able to service the debt.

Lenders typically want to see two years’ evidence of contributions. This can present problems for self-employed borrowers, especially if they aren’t contributing to their superannuation. PAYG borrowers usually keep up the 9% contributions, this isn’t always the case for business owners and throwing $50,000 into the fund to help with servicing at the time of application won’t necessarily help.

Another quirk older borrowers should be aware of is that many lenders won’t accept contributions to the super fund as income for servicing loans once the beneficiaries are over 60 years of age. Presumably on the assumption they’ll be starting to draw on these in the relatively near future. Older borrowers may need to put in a larger equity stake to ensure the rent covers the repayments. The benefit to this, however, is that the property may well be cashflow positive and could potentially boost retirement income.

Top Tips for securing a home loan through a SMSF
– Have your SMSF structured correctly.
– Ensure your SMSF can service the loan.
– Be aware of your age and options.

How to get the bank to approve your home loan
As you can see, there are many options available for all kinds of circumstances. The stereotypical full time worker is not the only person who can get a home loan. As there are so many options and every situation is different, it’s a good idea to speak to a broker. A broker is free and will go over your circumstances and needs, know which lenders will lend to you based on your situation and help you with all the paperwork. It will save you time, money and stress. Often, a broker can help you get a home loan when you thought it was impossible. Chat to one of our brokers today to discuss your home loan options.

*Please note, bank policies documented in this article are correct at the time of printing and are subject to change. You should seek advice from a mortgage broker or finance specialist regarding your particular needs.

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