This isn’t what you want to hear when you make the trip to your bank, cap in hand, to ask for money. However it’s often what’s said. The main reason is that many borrowers don’t understand how lenders look at you and how they assess your worthiness.
BY JANE SLACK-SMITH
It comes down to a two things:
- 1.You
- 2.What you’re buying
Let me deal with the first component. Without getting over the initial hurdle you can’t hope to even start the discussion on the second. So what is it that lenders want to know and how can you make yourself attractive to them?
Well it comes down to what you earn, what you owe and what your past looks like. This helps them anticipate your worthiness as a client and their assessment is based on more 100 years worth of data, in many cases, of what their past clients have done, how profitable they were for the bank and how worthy of lending they were. They have a profile of whom they want as a client.
Without doubt, you need an income and for most of us this means a job. To define this even further, it comes down to what I call your ‘career collateral’ and your ‘career capacity’. So let’s look at each of these.
Career collateral
For many, we build up a knowledge base quickly by dedicated learning through a tertiary education facility, TAFE or university. This qualifies us as a professional and gives us the knowledge of how things should work in our chosen field. Others went straight into getting the skills and built up their career collateral that way.
After a certain number of years you have skills, knowledge and experience.
If you change professions, sometimes you need to start again. After 15 years as a mining engineer and explosives expert, I started a mortgage broking company to share my property investing experience. My skills and experience as an engineer obviously weren’t translatable and my career collateral dipped – that is until I built up my skills, experience and knowledge. That led me to me awarded Australian Mortgage Broker of the Year.
In that time when I changed careers, I was a risk to any lender. I had no career collateral, no money making transferable skills and, to make things worst, I was self-employed without a client base or source, i.e. business collateral. Why would a lender lend money to me when I have no proof of what I could earn?
Career capacity
This is the future potential you have to earn money. Obviously the more experienced you are and the more skills you have, the more marketable you are to potential employers. They’re willing to pay you for your skills, knowledge and experience.
As a slight aside, consider your career choice. If you were buying a property what would you prefer a beautiful old terrace in a blue chip suburb with the opportunity to add even more potential by renovating, or one of 300 brand new one-bedroom apartments in a complex surrounded by more of the same? You’d want the first.
NGgetting a terrace might take time and hard work but it has so much more potential. When looking at your career and where you work, consider whether you’re a one-bedroom unit or a terrace. If you’re distinguished in your field and your field is niche, you’ll be paid more.
So for those starting a career or thinking about changing careers, consider these two things: how can you increase your career collateral and career capacity.
This not only makes you more attractive to lenders but it can lead to a career without limits. Okay, my ramblings on how you consider your career have finished, but it’s one of your assets so you should consider the investment of time you’ll be making in it and make sure it delivers all the value you want.
We are all defined by what we do. Who has not been to a barbecue and the first question after the introduction is around what you do for work.
Let’s say you say you’re a mechanic. You automatically put that in reference to your own experience. For most, you know your mechanic fixes your car, and the conversation could end there and polite engagement continues. In my mortgage broking business, I have clients who include a mechanic on a mine site who works on 250-tonne trucks, a Boeing engine mechanic for an airline, a mechanic on an oilrig, and the list goes on.
You get the picture. What we say we do and what that actually translates to doesn’t give the big picture of what career collateral or career capacity we actually have. However if you’re going to go and borrow hundreds of thousands of dollars, the lender needs to see more. They need to know your past but also they need to anticipate your future.
So how do lenders translate this? They know that those who’ve been in their jobs for more than two years are relatively stable. Their employer thinks they’re doing a job worthy of being paid and there’s capacity, one assumes, for that income to increase.
They then look at how stable you are in general. Do you have regular savings? Have you lived in the same place for years or do you move regularly? Do you pay your debts off on time and not take on lots of financial liability? These all indicate a stable history and the lenders find this on your credit file.
So when a lender stamps the big fat DECLINE on your loan application, you need to take some responsibility. You need to anticipate what they want to see and start rafting the profile of someone that you’d want to lend hundreds of thousands of dollars tp. After all, it’s all about you.
Jane Slack-Smith was recently awarded Australian Mortgage Broker of the Year. She’s the director of Investors Choice Mortgages and founder of Your Property Success online education. She’s also the author of Your Property Success with Renovation: 2 properties, 1 renovation $1million in the bank and leads a new renovation course, http://theultimateguidetorenovation.com.au.
