What do you need to get your finance approved?

Posted Wednesday, July 08, 2015 Comments (0)

Confusion. Frustration. Delays. These issues are akin to being stuck in a room full of politicians trying to solve a Rubik’s cube – no one wants any part of it, especially when it comes to arranging finance for your property. However, I bet if you were to sit down with a group of investors trading war stories about their property escapades, these recurring themes would likely score a leading role in the conversation. But why is it that for some investors the process of obtaining finance is over complicated and how can you improve your success rate to be like that of the mighty Queensland State of Origin team? 

You know you, but the lenders don’t… 

All lenders have lending criteria and conditions that make War and Peace look like a Where’s Wally book. The process of providing funding varies depending on range of factors: 

  • the type of property (residential, commercial, specialised, new developments)
  • the location of the property (inner city, rural, metro)
  • the borrowing structure (individual, company, trust, SMSF)
  • ability to service the loan (additional loans/commitments, self-employed, if constructing expected realisable value or rent)
  • exit strategy (long term hold, construct and sell, bridging finance)

Of course you as an investor have a pretty good idea of your position, goals and expected outcomes, but unfortunately lenders won’t lend against your word on this. Obviously the more business you do with a single lender the better they know you and the easier this process gets, however as mentioned here in previous blogs, this leads to a major cross-collateralisation risk. To get comfortable with handing over funds, lenders need to ensure the aforementioned criterion fits their risk and lending metrics. If for whatever reason your circumstances fall outside these metrics (for example if you are purchasing a retail property in an SMSF structure with the main source of income being derived from small development projects), well then let the roller coaster ride begin! This disparity between what an investor wants and what the lender believes the investor can have (which is based on their analysis and is not always guaranteed to be correct) is why so many property purchases, refinances or developments don’t go ahead. 

Get it all in order and go on the front foot… 

The good news is that majority of the time there is a lender and product suitable for your funding needs. Notwithstanding any major complications, as long as you have the appropriate information ready, the process of being approved for finance does not need to be as frustrating as my last fishing trip. Items you should be considering/obtaining before requesting finance include: 

  • Your latest Tax Returns & Financial Statements, payslips and/or Business Activity Statements as well as bank statements showing any additional income that can be contributed towards servicing assessment
  • Any lease agreements and/or real estate agent rental opinions for rental properties
  • Your most recent 6 to 12 months loan statements for other loans and commitments
  • An up to date list of Assets & Liabilities
  • Clear Tax Agent Portal Statements
  • If you are seeking finance for a construction project, lenders will need to see your Development Approval, Building Approval/Permits, fixed price building contract, building plans, evidence of insurance, pre-sale contracts and much more
  • Evidence of the source of your equity contribution and confirmation of your borrowing and legal structure

The items listed above are just an example of the information that is required, however every situation is different and you need to be sure you are approaching the right lender for the right product. Smart investors will utilise a good broker to ensure this process is done as efficiently as possible and to add value to their property investing activities. So be sure to do your research and get your information in order to increase your chance of success and reduce the time to secure funding.

Tim Donkin is a Finance Analyst at Balmain Commercial, specialising in sourcing finance solutions for commercial property investment, construction & development projects and residential finance. 

Email: tdonkin@balmain.com.au
LinkedIn: http://www.linkedin.com/pub/tim-donkin/2b/995/93

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