In our travels we come across many different types of people. Some people are an open book, others…not so much. Given we have to delve into areas that are often very rarely discussed, it’s important that we get a complete financial picture of our clients. Everything.
Why?
Well it’s not because we’re busy bodies. It’s because we’re required by the terms of our licence to take reasonable investigative steps to ensure that we:
- Submit an application that is honest and complete.
- Pass on a complete picture to lenders.
Failing to answer our questions honestly means your application will be dishonest or fraudulent. This could carry severe financial and/or custodial penalties at worst and a permanent stain on your credit record at best.
Now before I get into a few examples let me explain why most people that fall into this trap do so.
Firstly, most people apply for a home loan rarely (perhaps every 3 or 5 years). In that time, people fail to realise that much has changed in the home loan market. In the past 5 years we have seen a complete transformation in how home loans are assessed. Lenders have become very selective to whom they will lend money.
We, as mortgage brokers, have kept up with these changes. We live it day to day and we know where to place your loan application to give it the best chance of getting approval. In order for us to do that we need you to tell us everything and we need what you tell us to be accurate.
Now, the examples.
Recently, we submitted a home loan application for a client that had been rejected (two years ago) by the same lender we had submitted to – at the time of submission we had not been told of the rejection. Further, the client had told us that a couple of credit cards that she had had been repaid and closed. This was not entirely true. She had repaid them but they were still active. These omissions in their financial picture did not bode well for them when we eventually found out. The application was declined. Of course the lender already knew the client and went through their financial detail forensically.
Another client engaged us to do a lot of running around for a large home loan. We later discovered that he’d submitted an application via his accountant (who also doubled as a mortgage broker). Two days prior to putting a deposit down we get a panic stricken call to see if we can help get approval. We have no problem if he wants to use his accountant – we get it. But don’t ask us to make inquiries with the same bank that you’ve already applied to. It makes us all look unprofessional and will count against the application.
Giving your lender or broker what you think they ought to know as opposed to everything is a sure way of getting your credit declined at worst and delayed at best. Eventually, we will find out. If the lender finds out something negative about you and you haven’t fessed up, it counts against you as you are deemed to be someone of bad character. That is an automatic no. Worse, it’s recorded on your credit record for a few years.
We had a gentleman come visit us a few weeks ago. He wanted to borrow against an investment property but did not want to disclose any financial information. We obviously were unable to assist.
The thing that staggers me most about this is that they feel they can get away with this behaviour because they probably have in the distant past. Maybe they did but oh how things have changed.
Lenders now have at their disposal some very sophisticated analytical tools. But one of their most important tools is quite simple. They look at your bank statements. Specifically, they conduct a line by line analysis of your financial records and ensure that what you have on your application is not contradicted by anything on your bank statements (like an additional credit card payment that you neglected to tell them about).
One of the most common problem borrowers have are defaults on their credit record. By far the majority of these defaults (in our experience) that plague our clients are from Telco’s. You may have thought that you got away by not paying that overinflated phone bill after your last overseas trip but the Telcos have the last laugh. Usually the quickest way to clear these is just to pay them (assuming they’re a few hundred dollars or less). Sure there are organisations that will help you clear some of your defaults but in reality even if you do clear them banks are now starting to ask for a please explain regarding the default.
Also, if you’re the type of person that can’t help but apply for credit cards and you rack up a few applications every year, be aware that every application will generate a credit inquiry and this in turn will reduce your credit score. Lenders hate seeing this on people’s credit records. However, if you tell your broker, they will be able to assist by taking you to a lender that will overlook these minor blemishes. But be aware, these lenders charge around 0.50-1.50% above bank rates (depending how bad your credit record is).
So, in regards to your finances, when we sit down with you and ask you to tell us everything…we mean everything. Warts and all. If we know everything we know where to go to get approval. Otherwise you’re just wasting our time and getting your hopes up.