With the lockdown in full effect throughout Australia, and widespread adoption of social distancing measures, how does applying for a home loan work amidst the coronavirus pandemic?
By going 100% digital!
Here are some tips you need to know when applying for a home loan amidst the COVID-19 crisis.
Home loan approval rules have changed
Some lenders can manage the entire home loan process electronically, so they’re better equipped to operate under social distancing rules. Other lenders are transitioning to this new ground reality.
However, one thing is common among all lenders, and that is that they are all tightening their home loan lending policies as a reaction to the economic impact of the novel coronavirus pandemic.
Banks have identified the following industries to be particularly risky for lending:
- Entertainment/fitness/personal trainers
- Personal transport (ubers and taxis)
- Personal services (beauty)
- Sporting professionals etc.
Moreover, lenders are significantly scrutinising overtime income, bonus, commission etc.
In particular, borrowers on casual and contract income will find it hard to get approved.
You can read our in-depth coverage of changes in home loan lending policies here.
Buying a property
Buying a property is still okay, however, you need to manage the risks.
So, if you have found a property, and are pre-approved; provided you still have a job and income, you can proceed through to settlement.
However, please note that, perchance, you are mid-contract ready to settle, and you’ve lost your job, and can no longer afford the loan, then you may have to lose your deposit and pull-out of that sale.
Some banks are helping customers proceed to settlement (and avoid losing their deposit) if they can demostrate that they enough funds to cover the loan repayments in the short term (6-12 months).
So, please get in touch with your mortgage broker or bank to go over your options.
How to inspect a property amid coronavirus pandemic?
If you’re pre-approved and have found a property, you’ll still want to inspect the property.
The government has banned group inspections and in-person auctions as part of its social distancing measures.
So, to inspect a property:
- You’ll need to make an appointment with the agent. Since open homes are now limited in size and they must be done privately.
- Alternatively, you can continue to view properties online via Realestate or Domain’s “digital Inspections” for a virtual tour.
Auctions are being carried out by phone or online (virtual auctions). However, most sellers are choosing to sell by negotiation instead of auctions.
Tip: Ask the sellers to make an offer to you. This reduces time wasted on people expecting high prices. Aim for a price to be 15% to 20% below prices 4 weeks ago.
Property valuation amidst coronavirus (COVID-19)
Banks have different methods of valuing a property without the need for a valuer to physically inspect the property.
- Desktop valuation (electronic valuation) is okay for some lenders, especially if borrowing less than 80% of the property value.
- Kerbside valuation method where the valuer just drives past your property is acceptable to some lenders when borrowing up to 90% of the property value.
- Contract of sale as evidence of value, no valuation may be needed.
A full valuation is required in some instances, in such cases, we recommend asking the valuer if they have any symptoms and leaving the property while the valuer is there.
Social distancing friendly identification
Since many customers will no longer be able to meet face-to-face to complete their home loan application as more Australians stay home in response to the spread of COVID-19, some lenders allow types of identification that are social distancing friendly:
- Electronic ID verification methods such as ZIP ID, Green ID etc. which allow verification of identities against reliable, trustworthy, government and independent data sources in real-time. More lenders havea announced the option to electronically sign (eSignature) for loan and mortgage documentation.
- Verification of Identification (VOI) using video conference: A screenshot must be taken of each applicant holding a form of photographic ID, as well as screenshots of the identification documents required for each applicant. Simply, a video call holding up your ID.
- Mailing certified ID: You can have your IDs certified by an accountant, police officer, school principal solicitor, justice of peace etc .and just mail the IDs to verify your identity.
- Branch identification: You can simply walk into a branch with your ID documents and get it verified this way.
- Post office identification: You can take the lender’s VOI form to one of the forms to an Australia Post office, along with the correct required identity documents and will be identified there. There is NO cost to the customers to complete their VOI.
Verifying your income / other supporting documents
Our mortgage brokers can accept emailed documents in many cases.
Services we use like bankstatements.com.au can scrape your data from your bank account and reduces the need to provide many documents.
Signing the loan offer electronically
Some lenders have electronic loan docs that can be signed on your computer.
Electronic signatures being merely an image of a signature overlaid on top of a PDF document. (i.e. use of a ‘scanned’ signature image pasted onto a document; or using a feature of a software app such as Adobe to ‘create’ a signature).
Depending on the state you are in, you may need a justice of the peace to witness the ‘mortgage’ which is lodged with the state government. For example, this is required for all QLD mortgages.
Why is it important to get pre-approved now rather than later?
Getting pre-approved now and being ready will be very important when the market opens up.
The time it takes for a lender to assess your loan application has increased, with one major bank already taking 20 days to do so, which could blow to 30 days once the market opens up.
And with interest rate the lowest they’ve ever been, it is an ideal time for borrowers with stable income to take advantage as the property prices will likely bounce back once the economy gains momentum.
To get pre-approved for a home loan, talk with one of our specialist mortgage broker by giving us a call on 1300 889 743 or by filling in our short assesment form.