Would You Lend a Stranger $100?

You’re looking to take out a loan to buy a home or an investment property – sounds simple – but what are the lenders looking for to make them feel comfortable enough about lending you the money.

Before I answer this, try and think about it from the lenders perspective.

As an example, imagine you’re at a restaurant and a man you’ve never met before comes up to you and asks if you could lend him $100 as he has forgotten to bring his money with them.

What would you say?

Yes – No – Maybe – It depends.

Let’s assume that you said maybe or it depends – what would you need to know about the man to make you feel comfortable enough to lend him the $100?

You’d probably want to know more about him as a person?

You’d probably want to know how he intends to repay you the $100 and when you will get it back?

You’d also probably want the man to give you something of value as security for the $100?

Lenders think the same way as you do when they are considering to lend someone money, they just call it the 3

C’s – Character, Capacity & Collateral.

1: They want to know about your Character.

2: They want to know about your Capacity to repay the money.

3: They want to know about your Collateral that can be used as security.

Although this sounds simple enough, each lender has it’s own approach to the 3 C’s which is called their “Credit Policy”.

What this means is that each Lender has a set of guidelines which they use to assess whether to approve or decline a loan application.

Obviously you want your loan approved and the big challenge is to find a lender or lenders who’s Credit Policy or guidelines are acceptable to your individual circumstances.

Once you’ve found a suitable lender or lenders you can then compare their loan features and interest rates and make application to your preferred lender.

If you are considering purchasing a property in the next few months it may be wise to start your search for a lender now.

Once you’ve found a lender consider making an application for pre-approval.

If a pre-approval is granted the main benefit is that you will have peace of mind knowing what your borrowing capacity is and therefore the price range of properties that you can look at.

Once you’ve found a property the lender will carry out a few extra checks and if all is OK grant you full approval or unconditional approval.

The most important thing to consider when taking out a loan is the affect the commitment to making the repayments will have on your current and future living expenses and lifestyle.

What happens if interest rates go up? You lose your job? You become a parent and are living on only one wage? Or any other unforeseen circumstance occurs?

This is not meant to scare you but to make you think of how you would cope if placed into these situations and to help you to consider the many factors that go into making a decision about purchasing property.

If you are thinking about refinancing or considering buying a home or investment property and would like to know your loan options please call me on 0408 648 107 for a confidential discussion.

Regards

Dan