Home buyers are often like the proverbial square peg in a round hole when it comes to borrowing from the bank. The buyer may be 100 per cent certain of being able to pay the mortgage. But for a number of reasons, the bank may not be keen to lend.
Prepare so bank says yes
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Existing loans and unconsented buildings are reasons bank decline loan applications. Photo / Getty Images
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A common obstacle to getting a mortgage, says broker Wayne Lawrie of Mortgage Studio, is student loan repayments. The student loan repayments reduce the available income to pay a mortgage and are taken into account in the bank's "debt service ratio".
Lawrie points out that the monthly repayments on a student loan are the same whether the graduate has a $5000 loan or a $50,000 one.
"Student loans are interest-free, but they impact your debt servicing," he says.
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In these cases Lawrie arranges for the buyer to refinance their student loan over a longer period, reducing monthly outgoings and getting them over the debt servicing line for a mortgage. The need to pay interest on the refinanced student loan is outweighed by the ability to buy a home.
Another common problem is where the outline of the dwelling on the flat plan isn't consistent with the actual buildings on a cross leased property, says Lawrie. If the bank catches wind of this, it may refuse to lend because of the defect of title.
In a recent case, the vendor had built a wood shed against the home and the
bank said a resounding "no" to lending.
In order to get the deal over the line the vendor agreed to demolish the wood shed.
Baker had a similar case where there was an 11.5sq m illegal sleepout at the property.
The vendor's solicitor put a clause in the agreement that if the purchaser required; 11.5sq m of the structure would be demolished by settlement to make the sleepout legal. A lawyer bought the property and was able to get finance without executing the clause.
Another common obstacle is investors attempting to sell tenanted properties to first home buyers, which propels the latter into the investor category, meaning a higher deposit is needed. Baker recommends the investor wait until the end of the fixed term tenancy.
