Tips for low-income investors…
If you want to increase your chances of being approved by a lender, you should get your finances in order by improving your credit rating and showing evidence of financial discipline.
Here are some things to keep in mind when applying for an investor home loan:
- Pay a larger deposit: You’ll have a better chance of being approved if you borrow less and put down a larger deposit. This demonstrates to the lender that you have financial discipline and “genuine savings”’ for your home loan.
- Reduce current liabilities: The less debt you have against your name, the more inclined the lender will be to approve your application.
- Compare competitive home loans: The home loan market is competitive and there is a range of lenders that offer investment loans with minimal ongoing fees, attractive features and low interest rates.
- Use your existing equity: If you own any other property, the equity that you have may enable you to borrow more for your investment loan. By using any equity you have, you can borrow more than 80% of the value of the investment property without paying LMI because the new loan will be secured through your existing equity. For example, if your home is worth $500,000 and you owe $250,000 on your current mortgage, you have $250,000 in equity, and you may be able to leverage this equity to purchase your investment property and diversify your portfolio.
- Capitalise upfront expenses: Most lenders allow you to capitalise many of the upfront costs into your loan amount, including LMI, stamp duty and government fees. This will reduce your initial purchasing costs, which may help you enter the investment market sooner.
What else should I consider?
As a low-income earner, you may want to consider the following types of finance to see whether they suit your personal situation:
- Guarantor loan: If you can’t save up the required deposit or you’d like to avoid paying LMI, a guarantor loan can help you borrow the funds you need for your investment property. A guarantor assumes the responsibility of paying off the loan in the event that you’re unable to meet the repayments, and this lowers your risk as a borrower.
- Joint application: Apply for a home loan with a co-borrower so you can combine two different income sources and thereby increase your serviceability. Joint applications generally take into account the financial history of both borrowers, so ensure that you both have a positive credit file.
- Equity: Use the equity in your home, if you are a home owner. (Equity is the difference between the current value of your home and how much you owe on it.)
Improve your chances of being approved and follow these tips to be approved as a low-income earner:
- Try to have a steady employment history.
- Deposit cash into your savings or transaction account regularly.
- Reduce any existing liabilities or debts (personal loans or credit cards).
- Pay your bills in full and on time.