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Applying for a Home Loan? It’s important to get the details right.
Don’t risk bending the truth on your home loan application, it’s not just you who could end up in trouble…
Applying for a loan at a bank can cause anyone a bit of stress. Even for those who consider themselves pretty financially savvy. Lenders are required to ask a fair few questions to make sure borrowers can afford their loans, some of which are (necessarily) personal. When it comes to expenses and income, it might be tempting for potential borrowers to tell what they think lenders want to hear.
Thinking of fudging some of these figures on your application? Or perhaps you’re just not sure of the answers to some of the finance questions you're asked? It might seem harmless to simply estimate or guess some of your numbers, especially if you can’t foresee any problems making your repayments. However, according to a research study from UBS, getting these figures wrong can have a huge impact down the track.
The investment bank has identified a dangerous trend in America – ‘liar loans’1. Based on a survey of 900 people who took out a home loan in 2021, concerningly they determined that only 59% of applications are “completely factual and accurate”. Extrapolating from this, UBS reckons over a third of Aussie mortgages could be liar loans. That’s $500 billion worth.
What does this mean for borrowers, and for our financial system?
Lenders do not simply assess an application based on the current interest rate, they are also assessing if repayments can be afforded if circumstances like interest rates change. If rates go up, this could mean people are more likely to fall behind on payments, or worse, default on their mortgage. If house prices go down, people may not be able to sell their homes to get out of trouble. And if this happens to enough people, the banks could be in big trouble too. That’s not good for anyone.
According to the survey, the most common thing people aren’t truthful about is their living expenses (30%). Others play down their other debts (15%) or exaggerate their income and assets (15%). This is very risky for individual borrowers and can result in delays while lenders verify the information provided. It can even result in loan applications being declined. It’s important for borrowers to do their part by checking their facts. This helps to ensure that lenders can accurately assess and verify a borrower’s loan application, and more broadly – contributes to the future strength of our financial system.
It pays to check
The first step to staying on the straight and narrow with your application is understanding what you’re getting in to. Learn about the mortgage application and administration process before you even start looking for a property.
You can also reduce your risk of accidental slip-ups by getting a robust overview of your finances before you start filling out paperwork. When was the last time you drew up a budget – a detailed one? Our handy budget calculator can help you really understand your income and outgoings. You’ll feel a lot better when it comes time to get your mortgage, and you can be confident your lender will help you apply for the right loan for you.
No one wants to end up in financial distress, so it’s important to be accurate with the information you’re providing to make sure you don’t end up financially over-stretched.
Come and chat to us in branch or call us on 13 14 22 if you’re considering purchasing a home. We can fill you in on everything you need to know about applying for a home loan.