Did your bank say no to your home loan application? Don’t stress - you still have options available to get one.
Since the Global Financial Crisis, lenders have become stricter on their lending policies. With the increasing number of household defaulting on their mortgage commitments during 2009 and 2010, lending has become a lot riskier than it used to be. Instead, banks can only lend funds that their customers have deposited rather than the other way around.
But what this has meant is that people – especially self-employed small business owners and sole traders – who a few years ago had no trouble securing finance, are now struggling to get a new credit card, let alone a home loan. If you’ve already tried applying for a low-doc home loan with no success, then what do you do if the banks say no?
The first answer to that question is to try another bank. The lenders have a wide variety of requirements and some of them have a different focus, so with the right approach you might get across the line.
1. Try a mortgage broker
If you didn’t have a broker in the first place, it might be wise to enlist their help once you get your first rejection. They can work with you to make sure you’re presenting all your information in the best possible light and also help steer you in the direction of a lending institution that you might give you a better chance of getting your loan across the line. The service of a mortgage broker is free because they receive commission for every loan they settle, so if they don’t find you one they don’t get paid.
But if you’re still getting a big round of ‘NO’ even with the help of the broker then there are other steps you can take.
2. Try a mortgage manager
Mortgage managers offer you a boutique style service – where they’ll represent you for the duration of your loan, not just during the application process that mortgage brokers help out with. They organise funding from a variety of sources and are safe as they do not lend their own money.
Any time you have a query about your loan, instead of contacting your lender you go directly to your mortgage manager. This gives you the opportunity to build a relationship with someone who understands your investment goals and saves you from contacting the loan call centre.
- Mortgage manager at Suburban Management
- Product development and relationship manager
- Manages the marketing and online presence of Suburban Management
Marcus O’Mullane, says the applications of self-employed people can often be complicated and more challenging for bank staff to process and that's where the boutique service of a mortgage manager can become most useful.
Mortgage managers have more time and flexibility to sit down with deals that aren’t as straightforward and they often have a lot more skill at processing with deals that aren’t as straightforward because that’s a higher percentage of their business.
’Our guidelines are as strict as all the other major banks, the requirements are fairly uniform, but we have the time and attention to detail to sit down and slowly work through all the possibilities that could assist us to get the deal through.’
Mortgage managers get wholesale rates from lenders and they are often able to pass on discounted rates to their clients, sometimes more competitive than the big banks, because they are small operators with less overheads than the larger financial institutions.
According to O’Mullane, mortgage managers such as Suburban Management also have the authority to sign off on deals of up to $600,000, which means a suitable loan can be approved within two or three hours if necessary.
3. Apply to a Private Mortgage Fund
If your loan applications are rejected through the Mortgage Manager process as well, there is the option of applying to a private mortgage fund. These funds raise money from wholesale clients, such as hedge funds and lend money (in a tightly regulated way) to clients who are not able to be assisted by the banks.
Paul McCombe, mortgage broker from McCombe Finance launched the Allied Securities Limited private mortgage fund when he saw some of his clients in dire straits since the GFC’s effect on lending, with no options after the banks found these clients did not fit with their updated credit policies.
Private mortgage funds charge a premium over the mortgage rates that banks can offer, due to the cost of funds and the deemed higher risk.
McCombe says his fund offers rates from around 10 to 12 per cent on a one to two year term, with the aim of the fund to help people get back onto their feet and eventually assist them in getting across to the mainstream system.
’The clients we’ve helped have usually suffered some sort of illness to the main breadwinner or have lost their employment for a short period of time, which has contributed to their loan arrears or defaults and are now trying to play catch up,’ he says.
Mortgage managers tend to offer a more personalised service, compared to mortgage brokers according to McCombe. ‘We can look deeper into an applicant’s servicing and at how clients can meet our requirements and the Responsible Lending guidelines. The banks are black and white in relation to their credit policies, which we understand, but we have more flexibility. We can work with clients if the clients now have stable employment and a clear plan.’
Don’t give up
The bottom line is: if the banks say no you should keep trying. Even if none of these professionals can help you get over the line, they will at least be able to provide you with advice for how you can work towards getting your financial file in order - so you’ll have a clear goal to work towards and hopefully, better luck next time around.