Are you struggling to get an investment loan? Your serviceability might be the problem. Here are five tips for improving it in the current lending climate.

There are all sorts of things that could cause issues with your loan application.

Serviceability is the major one. This is the term that lenders use to refer to how well they think you’ll be able to handle the responsibility of loan repayments.

Having low serviceability suggests that you won’t be able to make the payments. This turns you into a risk, which most lenders want to avoid.

Wealth for Life APRA regulations
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High serviceability makes you an ideal client. If you can show that you’re able to pay reliably, lenders will love you.

But it’s not as simple as that.

Every lender had their own criteria when it comes to serviceability. We’ll get to that in a little while.

There are also external factors that affect how lenders judge your serviceability. For example, APRA regulations can cause lenders to tighten their criteria.

And that could change how they view your serviceability.

Anybody who buys a property has to consider the issue of serviceability. Whether you’re an investor or an owner-occupier, it’s going to get judged.

This article examines some of the things that you can do to improve your serviceability. But first, let’s look at how lenders typically calculate it.

How Serviceability Gets Calculated

As mentioned, every lender has their own methods for determining your serviceability.

Wealth for Life calculating servicability
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But the general formula works like this.

The lender will compare your income against your liabilities. Any personal loans or credit cards that you have will get considered at this stage.

Most will then add on cost of living expenses. Again, how they calculate these will vary. But they’ll cover the essentials, such as food, bills, and other ongoing costs.

From there, most lenders will also add what’s called an assessment fee into the mix. This is a margin that the lender adds to its variable interest rate.

Think of it as a safeguard. The lender uses this fee to assess how you’ll manage if your expenses increase unexpectedly. Usually, it’s between 2% and 3% on top of the lender’s current variable rate.

All of these liabilities get subtracted from your income. If you still have a good amount of money left over, you’re a serviceable borrower. If you’re struggling after the calculation, the lender may opt to refuse the loan because it puts both of you at risk.

What do you do in the latter scenario?

Thankfully, there are several things that you can do to improve your serviceability. Here are four tips.

Tip #1 – Figure Out Where You Stand Ahead of Time

Did you know that every home loan application you make gets recorded on your credit report?

Wealth for life your situation
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  • Gmail
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If you make a lot of applications in a short space of time, this fact can damage your serviceability. After all, lenders look at your credit score when determining your ability to repay.

Yet, so many borrowers rely on making applications to figure out if they’re serviceable.

Wealth for Life founder Anthony Peluso says it’s a better idea to do the calculations ahead of time:

“Get your finance sorted and understand what you’re borrowing. <It’s about> capacities. That means how much money you can borrow and how much you can service.”

Create a list of all of your current expenses, such as loans and credit cards. Add on to those any additional expenses that will come as a result of owning the property.

If you’re an owner-occupier, these typically relate to the household bills. As an investor, you’re looking at expenses related to maintenance and marketing the property.

Add them all together and see where you stand when you subtract them from your income.

If the money’s tight, you’re likely not serviceable. Don’t waste your time on an application that could actually damage your credit score. Instead, use the rest of these tips to improve your serviceability.

Tip #2 – Pay Down Your Existing Debt

As mentioned, lenders will look at your existing debts as part of their serviceability calculations.

Wealth for Life pay down debt
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The obvious move is to pay down as many of them as possible. The less debt you have, the more favourably the lenders will look at you.

Make early repayments and try to clear as many smaller debts as possible. With those out of the way, you can focus on larger debts, such as car finance.

It’s also important that you avoid taking on any new debt in the months prior to making your application.

Finally, note that even the smallest of overheads can affect your application. For example, you may have a monthly gym membership or a phone contract in place. These may only cost you $100 or so per month. But those are still expenses that a lender’s going to take into account.

Get rid of the little overheads that don’t add to your life. These include subscriptions and memberships that you don’t use.

Tip #3 – Apply When You Have a Stable Job

Stability is the key thing that a lender looks for when calculating serviceability.

They want you to have a stable income so they can feel more confident about you making your repayments.

Wealth for Life stable income
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As Wealth for Life’s Senior Property Investment Advisor Russel Zayedi puts it:

“When the best time to buy? When you’ve got the job, right. When you can service a loan, it means the bank will give you money. That’s the best time to buy property.”

Russel has helped thousands of clients achieve financial freedom through investment, so he knows what he’s talking about.

He’s pointing out that waiting for the market to move in your favour won’t improve your serviceability. The key is to buy when you’re in the right position to buy.

But what do you do if you’ve just gotten a job or you’ve recently changed employers?

It’s a good idea to hold back on your application for a couple of months. Wait until you have several months of documented proof of how much you’re getting paid. Waiting a while also allows you to use your employer as a more reliable reference.

Tip #4 – Factor All of Your Deductions in

This is a tip that applies specifically to investors who already have investment properties.

There are a lot of deductions that you can claim as an investor. And lenders often factor these deductions into their calculations alongside your rental income.

Examples of such deductions include the depreciation that you can claim on the property’s assets. If you’ve furnished the property and paid for appliances, you’re likely able to claim depreciation.

Provide documentation for this to your lender.

Depending on your strategy, you may be able to claim other deductions. For example, those using a negative gearing strategy may be able to use their tax deductions to improve serviceability.

Make sure you’re claiming the maximum in deductions and inform your lender about them.

Find the Right Loan for You

With these tips, you take some general steps towards improving your serviceability.

But there are so many other factors at play. Who you borrow from plays a large part in determining how much you can borrow. Plus, the advice that you receive can also help you to find loans that suit your circumstances.

This is where Wealth for Life comes in.

We understand how important it is to create the right financial structures for your circumstances. After all, everyone on the team is an investor too. We’ve all been in positions where we’ve needed to improve serviceability or look elsewhere for a suitable lender.

We can help you to do the same. Get in touch with the team today to find out how.

Are you struggling to get an investment loan? Your serviceability might be the problem. Here are five tips for improving it in the current lending climate.

There are all sorts of things that could cause issues with your loan application.

Serviceability is the major one. This is the term that lenders use to refer to how well they think you’ll be able to handle the responsibility of loan repayments.

Having low serviceability suggests that you won’t be able to make the payments. This turns you into a risk, which most lenders want to avoid.

Wealth for Life APRA regulations
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

High serviceability makes you an ideal client. If you can show that you’re able to pay reliably, lenders will love you.

But it’s not as simple as that.

Every lender had their own criteria when it comes to serviceability. We’ll get to that in a little while.

There are also external factors that affect how lenders judge your serviceability. For example, APRA regulations can cause lenders to tighten their criteria.

And that could change how they view your serviceability.

Anybody who buys a property has to consider the issue of serviceability. Whether you’re an investor or an owner-occupier, it’s going to get judged.

This article examines some of the things that you can do to improve your serviceability. But first, let’s look at how lenders typically calculate it.

How Serviceability Gets Calculated

As mentioned, every lender has their own methods for determining your serviceability.

Wealth for Life calculating servicability
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

But the general formula works like this.

The lender will compare your income against your liabilities. Any personal loans or credit cards that you have will get considered at this stage.

Most will then add on cost of living expenses. Again, how they calculate these will vary. But they’ll cover the essentials, such as food, bills, and other ongoing costs.

From there, most lenders will also add what’s called an assessment fee into the mix. This is a margin that the lender adds to its variable interest rate.

Think of it as a safeguard. The lender uses this fee to assess how you’ll manage if your expenses increase unexpectedly. Usually, it’s between 2% and 3% on top of the lender’s current variable rate.

All of these liabilities get subtracted from your income. If you still have a good amount of money left over, you’re a serviceable borrower. If you’re struggling after the calculation, the lender may opt to refuse the loan because it puts both of you at risk.

What do you do in the latter scenario?

Thankfully, there are several things that you can do to improve your serviceability. Here are four tips.

Tip #1 – Figure Out Where You Stand Ahead of Time

Did you know that every home loan application you make gets recorded on your credit report?

Wealth for life your situation
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

If you make a lot of applications in a short space of time, this fact can damage your serviceability. After all, lenders look at your credit score when determining your ability to repay.

Yet, so many borrowers rely on making applications to figure out if they’re serviceable.

Wealth for Life founder Anthony Peluso says it’s a better idea to do the calculations ahead of time:

“Get your finance sorted and understand what you’re borrowing. <It’s about> capacities. That means how much money you can borrow and how much you can service.”

Create a list of all of your current expenses, such as loans and credit cards. Add on to those any additional expenses that will come as a result of owning the property.

If you’re an owner-occupier, these typically relate to the household bills. As an investor, you’re looking at expenses related to maintenance and marketing the property.

Add them all together and see where you stand when you subtract them from your income.

If the money’s tight, you’re likely not serviceable. Don’t waste your time on an application that could actually damage your credit score. Instead, use the rest of these tips to improve your serviceability.

Tip #2 – Pay Down Your Existing Debt

As mentioned, lenders will look at your existing debts as part of their serviceability calculations.

Wealth for Life pay down debt
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

The obvious move is to pay down as many of them as possible. The less debt you have, the more favourably the lenders will look at you.

Make early repayments and try to clear as many smaller debts as possible. With those out of the way, you can focus on larger debts, such as car finance.

It’s also important that you avoid taking on any new debt in the months prior to making your application.

Finally, note that even the smallest of overheads can affect your application. For example, you may have a monthly gym membership or a phone contract in place. These may only cost you $100 or so per month. But those are still expenses that a lender’s going to take into account.

Get rid of the little overheads that don’t add to your life. These include subscriptions and memberships that you don’t use.

Tip #3 – Apply When You Have a Stable Job

Stability is the key thing that a lender looks for when calculating serviceability.

They want you to have a stable income so they can feel more confident about you making your repayments.

Wealth for Life stable income
  • Facebook
  • Twitter
  • Google+
  • Pinterest
  • Gmail
  • LinkedIn

As Wealth for Life’s Senior Property Investment Advisor Russel Zayedi puts it:

“When the best time to buy? When you’ve got the job, right. When you can service a loan, it means the bank will give you money. That’s the best time to buy property.”

Russel has helped thousands of clients achieve financial freedom through investment, so he knows what he’s talking about.

He’s pointing out that waiting for the market to move in your favour won’t improve your serviceability. The key is to buy when you’re in the right position to buy.

But what do you do if you’ve just gotten a job or you’ve recently changed employers?

It’s a good idea to hold back on your application for a couple of months. Wait until you have several months of documented proof of how much you’re getting paid. Waiting a while also allows you to use your employer as a more reliable reference.

Tip #4 – Factor All of Your Deductions in

This is a tip that applies specifically to investors who already have investment properties.

There are a lot of deductions that you can claim as an investor. And lenders often factor these deductions into their calculations alongside your rental income.

Examples of such deductions include the depreciation that you can claim on the property’s assets. If you’ve furnished the property and paid for appliances, you’re likely able to claim depreciation.

Provide documentation for this to your lender.

Depending on your strategy, you may be able to claim other deductions. For example, those using a negative gearing strategy may be able to use their tax deductions to improve serviceability.

Make sure you’re claiming the maximum in deductions and inform your lender about them.

Find the Right Loan for You

With these tips, you take some general steps towards improving your serviceability.

But there are so many other factors at play. Who you borrow from plays a large part in determining how much you can borrow. Plus, the advice that you receive can also help you to find loans that suit your circumstances.

This is where Wealth for Life comes in.

We understand how important it is to create the right financial structures for your circumstances. After all, everyone on the team is an investor too. We’ve all been in positions where we’ve needed to improve serviceability or look elsewhere for a suitable lender.

We can help you to do the same. Get in touch with the team today to find out how.

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