Qualifying for a mortgage in Victoria in the time of pandemic is not impossible, but it won’t be a walk in the park for most people. Although it is a buyer’s market, lenders are extra selecting in saying yes to loan applications due to the economic uncertainties brought by the COVID-19 outbreak.
If you’re planning to shop around for house and land packages in Melbourne West, Brunswick, Toorak, or Yarraville, you will have to do more than just demonstrating employment and income stability. The rules have slightly changed, so you must adapt and learn as quickly as possible.
Follow these sound pieces of advice to increase your chances of mortgage approval.
1. Prove that You Can Afford a Mortgage in the Long Term
Lesson number one is to convince your lender that you are financially capable of repaying your mortgage once things go back to normal.
If your economic potential has not been affected by the pandemic so far, you will find it less challenging to impress lenders. But if you are less lucky or have unstable types of income like commissions, you will face greater scrutiny.
While lenders are generally super cautious these days, many of them might be willing to cut a deal to qualify you if you have reduced income in the short term. Some lenders might agree to accept interest-only repayment and consider funds obtained from early access to your superannuation to help cover your mortgage expenses in the first 12 months.
2. Minimize Your Living Expenses
A shrewd lender will analyze your living expenses in the last three to six months. If you succumbed to panic buying on the onset of the pandemic, you might want to wait for your expenses to normalize before applying for a home loan.
3. Avoid a Construction Loan
Mortgages are not equal, and most lenders view construction loans as riskier than the rest. In a construction loan, the only valuable asset a lender could use to recoup a loss in case something goes wrong is the land. Without a wholly built structure, a lender has no reliable security to resell.
If you do not own a piece of vacant land yet, strongly consider buying an existing dwelling instead of building a house from the ground up. This way, your prospective lender will have one less thing to worry about when assessing your risk as a borrower.
4. Borrow Less
Speaking of risk, try not to borrow as much money as possible. The more cash you want from your lender, the higher exposure to risk the other party has to accept.
There are several ways to reduce your borrowing. First, you could negotiate strategically to drive down a seller’s asking price up to one-fifth of the original. Second, you could pick a smaller, less expensive property. Last, you could pay a large deposit to lower the loan to value ratio.
Your plan to buy a house could wait until things go back to normal. But the opportunity to achieve homeownership while saving a ton of money in the process is too attractive to pass up.
If you are determined to be a homeowner before Australia wins the battle against coronavirus, make your credentials as strong as possible before talking to a lender.