JohnHopkins

Loan Applications - What the banks will be looking for

With times changing and property markets thriving, it’s important to understand the fundamentals on lending and why banks will or won’t give you that tick of approval for a loan.

To give you a better understanding, I’ll first go over some of the key issues which are imperative to consider when securing your home or investment loan.

Contrary to what the majority of people think, building and maintaining your credit rating is extremely important when applying for a loan.

To put it in context – when you apply for a job, the first thing the employer will most likely look at is your employment history and qualifications on your resume.

The banks, on the other hand, will look through a Credit Reporting Agency (CRA) and investigate your credit history by looking at your credit file, which acts like your financial resume. If you don’t have any history at all, it doesn’t give the bank an idea of your previous borrowing performance which may work against you. However, if you have too many CRA enquiries (10+ within the last year or two) it may prompt the lender to ask why this is the case, which could be detrimental to you as it may be a deciding factor as to whether or not the bank will approve a loan for you. Remember, it is crucial to keep your credit file default and judgement free because if it’s not, it makes obtaining approval for a loan extremely hard.

If you passed the credit check test, it’s then a matter of the bank assessing your present suitability as a borrower for the loan you have applied for.

These are the key factors a lending institution will investigate when assessing your suitability for a loan;

• Consistency and stability in employment and residential history – Have you moved frequently and if so, why? Changing employers multiple times can show instability and be a negative in the banks' eyes.
• Assets to liabilities – Do you hold a strong/weak/average amount of assets and liabilities for your age or income range? It is essential your liabilities don’t outweigh your assets, as most lenders will not look at this favourably. For example, if you’re earning $120,000 per annum and have no debts and minimal savings, the bank may query where your income is going.
• Is there a savings pattern which can be clearly demonstrated? The majority of the banks now want to see at least 5 per cent genuine savings if an applicant is borrowing above 80 per cent of a property contract price. They will also look at other types of money behaviour such as paying rent, which can sometimes be taken into account as a savings pattern if it has been consistent over a period of time.
• Are your existing liabilities paid on time and kept in order? For example, is your credit card paid on time and kept in good order (i.e. not going over its limit).
• Is the information provided by you precise and correct? Are you disclosing your financial position accurately and honestly? For example, do the credit limits on your credit card match what you stated in the application? Lenders can and will request evidence to confirm information such as this. Another common example is where an applicant has a personal loan but doesn’t disclose this liability in their application. If the bank notices an undisclosed personal loan repayment coming out of the applicants personal transaction account, then this will affect approval.

All these points make up most of the criteria lenders will use to assess the strength of an applicant.

Please be aware you can also check your own credit file prior to submitting your loan application to the bank. To check your credit file visit www.mycreditfile.com.au, where you can apply for your credit history at the current cost of $32.95. Your credit history will then be either emailed or posted to you.

You may be thinking ‘this is not rocket science’, but when it’s time for you to apply for your loan, keep these points in mind as it will make submitting your loan a whole lot smoother, easier and, of course, get you that tick of approval you are hoping for!


For more information, or to arrange an appointment with a John Hopkins Mortgage & Finance Consultant, please contact our Client Liaison Officer on 1300 726 082 or click here.