Loan approval secrets revealed: how to get the loan you want

I used a mortgage broker for the first time well over 10 years ago. I wasn't impressed.

Then again, I'm probably not the easiest person to sell a home loan to. I've since revisited a broker and I've had a change of heart. You could say I have a newfound respect for them.

I've always said that you should see a broker if you're in the market for a loan. After all, a good one won't cost you anything. But I've strongly recommended that you do your own homework first.

Mortgage brokers are still salespeople. You need to be in a position to question their choice of loan for you.

While a good broker will have well over 20 lenders on their books, some of the cheapest home loans won't be on their panel as many lenders prefer to forgo paying broker commissions so that their rates can be kept low.

Other lenders such as HSBC make it a policy decision not to distribute their loans through brokers.

But having said that, they are worth their weight in gold when it comes to successfully getting a loan for you.

Over 40% of all new home loans in Australia are sourced through brokers and there's a good reason for that.

Online sites and magazines such as Money allow you to compare loans but here's the catch: your research may point to lender Y as having the best loan for you but if its policies are too restrictive then your application won't get off first base.

You see, ever since the National Consumer Credit Protection Act came into place, it's not that easy getting a loan if your circumstances aren't straightforward. I can vouch for that!

Each lender has different policies and idiosyncrasies. Some give favourable weight to an application from an existing customer while others don't care.

Some lenders include only 75% of rental income as income, meaning your borrowing power drops. The same can apply with dividends: some lenders include only 50% as income while others take the full 100%.

And if you have an existing joint loan, a whopping 99% of lenders assess your current borrowing capacity as if you owe the entire amount - making it very hard to, say, buy an investment property in your own name. Bet you'd like to know the 1% of lenders who don't do this.

You either need a crystal ball to determine which lender's policies will work in your favour or you need a broker.

I asked mortgage broker John Kennedy of Mortgage Choice and property adviser and broker Jane Slack-Smith, the founder of yourpropertysuccess.com.au and principal of Investors Choice Mortgages, for inside secrets on what it takes to get a "yes" from a lender today.

From years of testing the system, here are their tips:

Friends first

Some lenders favour existing customers, so Slack-Smith often recommends a client open a bank account with as little as $10 before applying.

Strongest on top

The strongest applicant should be the first applicant. Someone who has been in their job for five years on $40,000 may be a stronger primary applicant than a partner on $120,000 who has been in their job for six months and their previous job for two years.

Share debts

If you have a previous joint loan, 99% of lenders will assess your current borrowing capacity as if you, singly, have the entire loan. Kennedy says this will occur even if you have a 50:50 agreement with the co-borrower. AMP is a notable exception.

Rental income

For applicants with several investment properties, rental income is discounted by 75%. AMP is one lender which, if you are borrowing with an 80% loan-to-value ratio, will assess the rental income at 100%, letting those whose servicing capability has peaked with most lenders able to borrow more.

Mortgage insurance woes

There are only two lenders mortgage insurers (LMI) in Australia. Some lenders have access to both. If you fail an application with a lender who uses one of them and you go to another bank that also uses that LMI provider, you will automatically fail, as that provider has you on file.

New job

Some lenders (such as NAB) will ignore the fact you are on probation in your job while others require you to have been in your job for 12 months.

"Don't risk a hit on your credit file by choosing the wrong lender," says Slack-Smith. Kennedy adds: "I think quite a few borrowers would be surprised as to how some lenders look at a situation."

I certainly was! If your situation is not straightforward, it may pay to use a broker. Just do some research first to keep them on their toes.

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