By Louisa Sanghera, Director, Zippy Financial
If you’ve been thinking of applying for a mortgage, you may have spent some time preparing for the process. I’m guessing you’ve cut back on your non-essential spending, saved as much money as possible for a deposit, maybe even paid off that last little bit of credit card debt that’s been hanging over your head.
You do all of this so you can present yourself as an excellent borrower to the banks.
But have you thought about how your older debts might come back to haunt you?
When credit cards from the past can be a problem
Recently, I’ve had a couple of clients who were shocked to find that credit card debts from the past were getting in the way of a successful finance application.
One client was hoping to secure a home loan. They had a squeaky-clean application that ticked all the boxes, as far as we were concerned.
Serviceability? Check! Are current accounts all paid on time? Check! Enough income to service the debt? Check!
Unfortunately, they’d failed to disclose late payments on a credit card from the past.
Now, in this client’s defence, they hadn’t deliberately left his information out. It simply wasn’t on their radar, because the card had been closed for two years. They genuinely believed it wouldn’t be an issue, especially considering the effort they’d made to keep their finances on track ever since.
But, as a result of this old credit card they’d pretty much forgotten about, their application was knocked back.
Six-figure income doesn’t mean home loan success
Another recent example was a couple who came to us for help getting a home loan. They’re both professionals on great incomes, pulling in more than $300,000 between them. Shouldn’t be a problem securing finance, right?
They too ran into difficulty, thanks to a credit card from a few years back. While they’ve always had the cash available to make their repayments, the organisation wasn’t their strong suit.
Busy lives and day-to-day distractions meant they’d missed a few payments, and their credit provider had shared this information with another major bank – the bank we’d approached for their mortgage.
Here’s the thing. When we submit a finance application for a client, we like to be 99 per cent confident it will be approved. Why? Because every application you make, whether it be for a mortgage or a lounge suite on interest-free terms, means an enquiry on your credit file. And having too many enquiries on there is not a good look. It can even make getting approval in the future more difficult, which is the last thing you want.
Not only that, it could mean you miss out on your dream home, because you now need to take the extra time to find a new lender, and another buyer with their finance pre-approved could swoop in and snap it up.
Unfortunately, we didn’t know about these historical credit issues. If we did, we could have managed expectations with the lenders in question prior to submitting the application formally.
Even if a debt or credit issue is in your past, please share it with your broker. We may be able to use a credit repair agency to sort it out, or sometimes we can try to find a lender whose policies suit your needs.
What we can’t do is fix problems that we don’t know about.
Full disclosure is the best way to help us help you!
Think of your broker like a dating agency, trying to find you the perfect match. If you leave out key details when filling out your profile, chances are you’ll end up paired with potential partners who you find less than desirable.
So, tell us everything – even if it’s embarrassing, or you don’t think it’s super important. We’ve heard everything before, and we won’t judge. What we will do is find the best lender, best interest rates, and best terms for your unique situation, so all you have to worry about is packing your moving boxes and settling into your new home.
If you have any questions about the home loan process, how much you may be able to borrow or what your options are, feel free to get in contact with our friendly team today.