Have you ever wondered how some people seem to always get what they want when they go to their bank, especially when it comes to getting the best home loan? Well don’t be surprised.
Best Home Loan
I see it all the time when I visit clients who talk about their friends who went to their bank and got exactly what they wanted, yet when the clients went to the same bank they didn’t qualify for what they needed.
Let’s look at what is happening and work out what you can do.
What’s involved in finding the best home loan?
When a bank assesses your borrowing capacity it looks at a whole range of factors. The most important ones are:
- How much money you earn.
- How much deposit you have.
- Your credit history.
- The value of the property you want to buy.
For the sake of simplicity we will temporarily ignore the other factors that banks use when assessing a home loan application and pretend that these are the four key factors. Then we’ll look at finding the best home loan.
To make things even simpler, let’s assume you have a good credit history and have a 20% deposit because when we do this it makes it easier to compare bank loans and understand exactly what is happening at the bank.
Here are the constants which we can use to compare home loans and borrowing capacity and finally answer the question “how much can I borrow?”
- Applicant 1. Salary $65,000. Credit card with $8000 limit.
- Applicant 2. Salary $50,000.
If you visit Heritage Building Society you will probably qualify for a home loan maximum of $546,000. Oh, bad luck! You actually needed to borrow $700,000, so it’s back to the drawing board. Why not try the Commonwealth Bank? There you’ll qualify for $583,500 which is better but nowhere near enough. Not the best home loan anyway.
So, you decide to try your friend’s bank and visit your local Suncorp branch, but after a 30 minute process they tell you your borrowing capacity is $623,000.
Despondently you head home and write down the results:
| Suncorp | $623,000 |
| CBA | $583,500 |
| Heritage | $546,000 |
After some thinking and long discussion you think about the possibilities:
- You might be able to borrow the extra with a personal loan.
- You might be able to convince Mum and Dad to help you get over the line.
- You might call Michael Haydon on 1300 133 193 for a free consultation.
In the end you do the right thing and call me and I tell you the following things about how to find the best home loan.
All banks have different lending criteria and you’ll get a different answer about your borrowing capacity. They’ll possibly try to convince you to choose another property and give you a Pre-Approval Home Loan Certificate to make you feel special. (Don’t be fooled into thinking that a Pre Approval Certificate is worth something! I’ll tell you why later.)
What’s more
It’s very common for your borrowing capacity to vary by hundreds of thousands of dollars!
So, is it really possible for the borrowers we talked about above to really get the loan amount they need? The answer is a very loud yes!
Take a look at the following table* to see just how much your borrowing capacity varies from bank to bank.
| BANK | LOAN AMOUNT |
| ING DIRECT | $713,400 |
| ST GEORGE | $693,900 |
| NAB | $632,800 |
| AFG | $630,000 |
| SUNCORP | $623,000 |
| MACQUARIE | $620,300 |
| CITIBANK | $607,000 |
| ADELAIDE BANK | $602,500 |
| THE ROCK | $602,000 |
| CBA | $583,500 |
| HERITAGE | $546,000 |
| PEPPER HOME LOANS | $514,300 |
*This table is accurate as at 4 July 2011 and will change from day to day. This is because banks are continually changing their lending policies and this in turn affects borrowing capacity. Also, remember that there many other factors that affect whether you will qualify for a particular loan. This table is used to demonstrate the large differences between banks and other lenders.
You can see from this table* that from top to bottom the difference is just under $200,000.
That’s enough to confuse anybody!
With these differences is it still possible to get the best home loan?
Happily, the answer to this question is once again, a very clear and resounding yes.
That’s because you’ll find that many non retail bank lenders like ING DIRECT, AFG and Macquarie offer some of the cheapest fully featured loans on the market, but you’ll have to talk to a mortgage broker to get the details and see whether or not is appropriate for you, because these lenders usually only take applications lodged with a broker.
So, this is a good time to review the things you might want to consider when deciding what is important in a home loan.
- Make sure the loan has the features you are looking for like a redraw facility and the capacity to make extra repayments without restrictions or limits.
- Look at the costs involved with every loan so you are going in with your eyes open and won’t be caught out by any unexpected fees or charges.
- Remember that to qualify as the best home loan it must meet your requirements which mean that just because it was good for your friend, it may not be right for you.
- Do your research long enough in advance so you won’t be forced into a loan with a lender who can process your application in time to meet the finance clause on the purchase contract.
The best way to do this is to discuss your needs with a mortgage broker and go over all the alternatives like:
- What are the most competitive variable interest rates?
- What are the best fixed rates at the moment?
- Are there any special offers which can save me?
- Is there a better way to structure my loan to pay it off faster?
Just sitting down with your broker for an hour or so can literally save you thousands of dollars or more in the long run and ensure that you do end up with the best home loan on the market.
