If you’ve been thinking of investing in property, then now is the time to start organising your finance before the busy spring borrowing and buying period hits our Australian lenders.
There are two main factors at play here, September, October, and November are traditionally busier periods for property sales plus the lenders have tightened their lending criteria, which could see the approval process increase by an extra couple of weeks this spring, as lenders deal with an increase in mortgage applications during this period along with the additional ‘red tape’.
A couple of extra weeks may not sound like a big change, however a few weeks delay could mean the difference between you being in the right position at the right time to secure your investment property or not. Another thing to consider is because lenders have tightened and changed their lending criteria, the amount that you were approved for last year, may no longer be the same amount or even valid this spring.
Know Your Limits
It was Clint Eastwood playing the character of Harry Callahan in Magnum Force who said, “A man’s GOT to know his limitations,” and it’s the same in property investing when it comes to understanding how much money you can borrow, and therefore how much money you can spend on your first or next investment property.
You need a clear understanding of what the lenders are willing to lend you. Always seek to get conditional approval for how much you can borrow in writing, which also means the lenders have looked at your documents (payslips, bank statements, monthly expenses and proof of savings) and the suburbs and types of housing of your planned investment, so you can be reasonably confident that any approval will go ahead.
Unless you stumble at the final hurdle, which is the lender or bank’s valuation on the property you just purchased. The key here is…
Don’t Overpay For Your Investment Property
Given the current climate and stricter lending criteria, one of the final pieces of the lending puzzle comes down to what you pay for the property. There can be a big difference between what the buyer thinks a property is worth when compared with the lender’s valuation.
What this can mean for property investors is that if the lender’s valuation comes in lower than what you paid for the property, this can push the lender’s loan-to-valuation ratio to outside the criteria of what they originally will allow, which means you won’t qualify for the loan from this lender.
Finally, be aware there can be large discrepancies between the valuations from the various lenders on the same property. Some will base their research on the local sales history of similar properties, others will visit the property as well as look at the sales history of the area, so as always do your research and be prepared to shop around until you find the finance deal that works best for you.