Do These 6 Things Before Applying For a Mortgage

https://www.youtube.com/watch?v=4N8YjMF0SB4 If you're looking to invest in property, you're going to likely need to get a mortgage. And if you're going to need to get a mortgage, you're going to need to present your finances to the bank in a way that they're happy to lend you money. And today, I have with me Michael Brown from mortgagebrokersydney.com.au. And he was telling me that he spends so much of his time coaching people and things that they need to do to get their finances in order so that they can get a loan, I thought that would be a great thing to talk about to help everyone out there who's looking at getting a mortgage. Contact Michael - https://mortgagebrokersydney.com.au 0:00 - Introduction1:07 - Have your documentation3:10 - Explanations for expenses4:53 - Regular savings pattern + frugal living7:19 - Reducing your debt + making debt repayments8:35 - Reducing credit card limit12:23 - Get a copy of your credit report15:45 - What point should you engage a mortgage broker19:15 - Benefits of using a mortgage broker Recommended Videos: Summary of Australian Lending Changes: 2021 Update Transcription Ryan 0:00If you're looking to invest in property, you're going to likely need to get a mortgage. And if you're going to need to get a mortgage, you're going to need to present your finances to the bank in a way that they're happy to lend you money. And today, I have with me Michael Brown from mortgage broker sydney.com.au. And he was telling me that he spends so much of his time coaching people and things that they need to do to get their finances in order so that they can get a loan, I thought that would be a great thing to talk about to help everyone out there who's looking at getting a mortgage. So hey, Michael, thanks for coming on today. You know, Ron, Michael 0:30good to be here. Ryan 0:32Okay, so let's just say someone's looking at investing in property, maybe they've got their deposit at the moment. Generally, I think most people would just be like, Okay, I'm just going to go to the bank and apply for a mortgage straight off the bat or speak to a mortgage broker. But there's a lot of things that they can do to help set them up for success before even getting to that point, or if they're in the process of saving their deposit isn't Michael 0:53that they absolutely is. And and, and that will just make it much, much easier. Firstly, for them, and then for the the broker and the bank to approve their loan. Ryan 1:06Okay, so what are some of these things that people need to be aware of or need to start doing before they apply for a loan? Michael 1:13Well, there's obviously some basics, you can have all of your documentation, you would be surprised how difficult it is for sometimes for me, literally just to get you to send me the information that I need. Now, I know that sounds like basic housekeeping, but your life is going to be easier if you've got some basic things ready. Ryan 1:33What documentation are we talking about here? Ah, I Michael 1:36think I'll go through a really brief list. But if nothing else, you could have your payslips ready. Sounds basic, but you'd be surprised how many people can't find them. If you're self employed, really big one have done your tax return, that lots and lots of people who are self employed a front front up with their their tax return from last year or two years ago. And, and sometimes that's enough, but at the moment, you'll find that, particularly after we've, so we've worked our way through the pandemic, self employed, people really need to have their June 2020 tax returns done. The banks are really big on having as much current information as they can. And for a self employed person, a June 19 tax return isn't gonna cut it. Ryan 2:25Yeah, especially with all the changes that have happened in 2020. With COVID. Like, just because you have this much in 2019, that does not have any correlation to what you may have earned in 2020. Michael 2:36That is absolutely the case. So that that there just a couple of simple the simple documentation, the rest of them in terms of documentary requirements, and things like knowing where you can get all of your statements, and making sure that you've got copies of, you know, contracts, the rental assessment for the place that you're going to buy all of those things. I know they they're basic, but they're all things that we need. But the things that you can really do is just make sure that you're you are actually you have everything in order things like your expenditure. Have you have you been? Do you have anything unusual? That's gone in the last three months? If you do at the moment, you're probably still going to have to have a basic explanation for it. So Ryan 3:23So how far did the banks go back when looking at your expenditure? Michael 3:28That's a really good question and different rules for different banks. It's not going to be any further than three months. And it could be as little as one at the moment, as we have, as we've seen over the last little while some of those more onerous, investigative procedures are starting to ease a little bit. So Ryan 3:50that's really pointing Why did you buy a coffee? Why did you buy two coffees on Wednesday instead of one? Michael 3:56Well, there's the famous case, certainly that I've seen where the individual concerned was being questioned why he ate a cabana coffee every lunchtime. Now, admittedly, it was because he spent he said that he only spent something like $50 a week entirely on food and had managed to spend $60 just on his lunches. But nonetheless, that's sort of in you know, the level of investigation that we were seeing, and we're not we're not seeing that now. But if you've got big things that you've that you've seen going out, you know, like a $2,000 payment or an $8,000 payment, you should be prepared to explain exactly what that is. And it's not necessarily because your broker's fantastically invested in your lifestyle, they just want to be able to put the best case for you forward. Ryan 4:47So ideally, if someone's looking at investing in the near future, it's it's kind of like okay, you want to live frugally for the next three months. Ideally, if banks are gonna look back that far. So then when they look at your statement, they look at your expenses. They say, Okay, this is a frugal person, their expenses are extremely high. And they assess you based off that, versus if you spend three months living it up, and you know, buying things, obviously Christmas could be an issue for people. Unknown Speaker 5:17Look, Michael 5:18we're not, we're not the banks are not completely unreasonable, although we might think they are sometimes. And we do understand that Christmas is a seasonal thing, and that they, you know, there is a level of, shall we say, one off per annum expenditure there. But you certainly don't want to go and living the life of Riley for the three months immediately before you're going to buy. The other really big thing that you can do really, to help yourself is have some kind of regular savings patent. If you're asking a bank to agree that you can afford to pay $1,000 a month towards a loan, on top of the rent that you might earn as an investor, it'd be pretty handy for your case, to have shown that for the last three to six months, you've been saving $1,000 a month makes it a lot easier. If you if you have if you've been saving a grand total of $10 a month might be a bit of a stretch certainly going to be harder. Ryan 6:16Yeah. So it's just something like that regular Savings Plan, which I talk about on this channel all the time is pay yourself first. So as soon as you get paid, put a percentage of that money or a set dollar amount. Put it aside before you do anything else before you pay your rent or live your life or anything it's like straightaway, save it. So if you know that your mortgage is going to repayments are going to be around about X amount, you can show that you've been saving that money. Michael 6:42It's a pretty powerful, pretty powerful positive for your case, if you've got if you've got the two things covered, which is the rental for the place that you live in, because we all have to actually live and you've got some savings on on a monthly basis as well, you know, for your future loan, yeah, then you, you starting to be a pretty safe bit. And you don't want to just for the last two months, ideally, the longer you can have it the better but certainly three to six months. And that really does help your cause. Ryan 7:18Yeah, and what about like debt reduction, paying off credit cards, or having car loans is that sort of stuff going to stop people from getting a loan or just make it more difficult? Michael 7:28Well, it's not going to stop you in any way those things. In some ways they help you, but because they can they they do show that you're, you know, a person of good character, they show that you've got the inclination to make monthly repayments and to make them all of the time. So they're all really good things. The one, the one thing that they do do to your detriment, however, is they reduce your borrowing capacity. If you've got, you know, if the bank assesses that you've only got a total of $4,000 a month that you can spend on loan repayments, and you're already spending $1,000 of it on a car, then you can only afford to borrow three quarters of what you would otherwise have been able to borrow. Yeah. So that doesn't mean that it's a bad thing, as long as it's not going to stop you from buying the investment property that you wanted to buy. Ryan 8:17Yeah, and a mortgage broker, if you speak to a mortgage broker, they can kind of look at that stuff and tell you, you know, if you were to get rid of this debt, your borrowing capacity would be x Michael 8:26versus if you have it, I spend so much time giving people guidance on that, you know,