The Australian Prudential Regulation Authority (APRA) tightening regulations on investor lending doesn’t necessarily mean bad news for property investors. It ensures banks and other lending institutions become more responsible about who they loan funds to. Need tips on how to secure financing for a property investment? Consider doing these.
Raise your credit score
If you want to get your bank loan approved, a good credit score is a must. Banks are stricter on credit scores than other lenders. They have a credit score range that you need to be in for your home loan to be approved.
A good credit score can also help you in negotiating the terms of your loan. You would be able to negotiate loan conditions like the total amount borrowed, your monthly payments, the interest rate, and more. The better the credit score, the better the terms will be in your home loan.
Therefore, consider preparing for at least a month before you start applying for one. Examine your credit history, and work on raising your credit score. Should you find errors in your credit report, fix them immediately. Doing so may raise your score to where it needs to be for your home loan to be approved.
Here are some other ways to increase your credit score rating:
- Make sure to make your monthly payments on time.
- Don’t make too many credit applications at the same time. Having too many credit applications within a short period can negatively impact your score.
- Get rid of credit cards that you don’t need. Consolidate the cards that you do need, and close the other ones.
Ensure you have adequate reserve funds
Mortgage lenders will need proof that you have enough reserve funds before they approve your loan. Reserve funds include cash, property, cars, or other assets that are easily available to use for unexpected expenses.
Having adequate reserve funds will assure lenders that you will be able to make your payments on time. It’s not uncommon for lenders to require you to have at least 6 months of payments in reserve.
Be careful of having a high LVR
Other than having enough reserve funds, you will also want to improve your Loan to Value Ratio (LVR). Lenders will also use your LVR information to assess whether they should approve or decline your home loan. Your LVR is the percentage of the money you borrow for a home loan compared to the value of the property investment.
For example, if you have your eye on a property that’s worth $400,000 and you already deposited $100,000, you still need to borrow $300,000. This amount that you need to borrow is three-quarters of the property’s price which makes it an LVR of 75%.
As a borrower, you would want to have an LVR of 80% or lower. Anything above 80% is considered a high-risk loan. High-risk loans tend to incur additional fees such as Lender’s Mortgage Insurance in order to protect the lenders in case the borrower defaults.
However, LVR standards do vary based on the type of loan and the lender. Should you need more property investment advice that will suit your needs, seek advice from a professional.
Use the equity that you already have
If you’re already a homeowner, you can try to apply for a home equity loan. Home equity loans have lower interest rates compared to other loans. This type of loan is also based on the value of the property that you live in and not the property that you’re buying.
Banks will typically calculate the value of your home and will lend you a specified percentage of your home’s value. So if your home’s value is $100,000 and they approve 80%, you will get an $80,000 loan.
However, having a mortgage will also factor into how much you’re going to get. So for example, if you already have $25,000 mortgage on your property, you would now get a $55,000 loan which is still 80% of your property’s value.
We hope that these tips help you to finally get a home loan for that property investment that you’ve been dreaming of.
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