Getting your investment loan application over the line
As well as being a significant financial move, the decision to purchase an investment property can be difficult in today’s lending environment, where access to investor finance has tightened.
To find out how to give your investment loan application the best possible chance of success, we spoke to Avenue Financial General Manager, Peta Siebert.
Tip 1: Always be open and honest
Verification and documentation have fast become two of the most important aspects of any loan application.
"Gone are the days of limited documentation,” explains Peta. “Now it is all about verification: of income, of deposit and of your monthly living expenses. It doesn't matter how much you earn, what the value of your home is or how many investment properties you may already own, each individual loan application needs to be verified and the documentation needs to be current.”
To ensure your investment loan application process is seamless, always be open and honest with your financial advisor to avoid any hidden surprises at the verification stage.
"Don't hide anything from your bank or broker," says Peta. "With all the verification and credit checks that the lenders do – and that is after your financial broker does their own – if something shows up that is not included on the application, the loan will be declined.”
“Once you have a declined loan on your credit report, any other future lenders will want to know the reason why.”
Tip 2: Understand what you want to achieve from your investment
"An investment property is not an emotional purchase," cautions Peta. "Know what you are wanting to achieve from an investment property over set periods: one year, three years and five – 10 years. This allows your broker to apply for the loan that best suits your goals and to structure the loan/s to suit both your long and short term financial needs.”
“Too many people look only at the short term and get themselves into trouble with their financial structure down the track.”
Tip 3: Avoid excessive ‘shopping around’
While it’s a good idea to search for the best possible deal, be wary of making numerous applications to various institutions without the support of a professional. Multiple applications are likely to raise a red flag with most financial institutions as they undergo their credit and verification checks. Most will interpret multiple applications as an indication of an application that has previously faced rejection.
In order to avoid this outcome, yet still examine all your options, consider consulting a trusted mortgage broker who can undertake the research process on your behalf, while keeping your credit history in pristine condition.
Tip 4: Buy blue chip
Financial institutions consider the security of the loan they are investing in, too. This means an investment property in a blue chip regions such as Boroondara will be viewed more favourably when a financial institution is deciding whether to give an investment loan application the green light.
“Blue chip areas are often seen as a more financially secure option and loan applications for purchases in these localities can be viewed as more desirable.”
Tip 5: Capital
Having enough capital – either through equity or savings – will work in your favour.
“A deposit of 20 per cent or more reduces your loan to value ratio (LVR) to 80 per cent, generally obviates the need for lender’s mortgage insurance and exponentially increases the likelihood of investment loan application success,” says Peta.