What to do when the bank says “no” to a mortgage

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NOTICE: When the bank says no to a home loan, it’s not the end of the line.

So-called “non-bank” home loans are booming, but it’s worth being careful when approaching.

It is a tiny part of the mortgage lending business. At the end of March, households owed $ 225 billion in home loans, of which only $ 2.3 billion was to non-bank institutions.

But taken at face value underestimates the importance of non-bank lenders as a lifeline (or savings) for families.

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Most people who cannot get a home loan from a bank, but manage to get one from a non-bank lender, only stay two to three years, until they are. eligible for a bank mortgage.

So, yes, it’s small, but it is constantly recycling money, so it’s actually used by more families than the numbers suggest.

No one wants to rent their whole life.  People rationalize doing it, but the importance of owning a home runs deep in our culture and is almost always necessary to ensure a decent retirement.

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No one wants to rent their whole life. People rationalize doing it, but the importance of owning a home runs deep in our culture and is almost always necessary to ensure a decent retirement.

A non-bank is literally not a bank. These are finance companies, building societies, credit unions, mortgage credit trusts and even a KiwiSaver program and several insurance companies.

They each have their own niches, but since banks suck most home loans, finance company lending niches primarily need to provide loans that banks will not.

The largest tend to be Australian companies: Resimac, Pepper, Bluestone, and Liberty, although local lender Avanti Finance, better known as a higher interest personal loan and auto loan company, pays it.

Then there’s Simplicity, a KiwiSaver provider that has launched itself into direct competition (albeit modestly) against banks, rather than feeding off the junk that banks don’t want. Mortgage companies and credit unions are also “primary” mortgage lenders like banks.

Scraps is a rough term to use, but there is more than a grain of truth.

Banks are best viewed as huge machines. Their controllers set up the checks, determining what loans can be granted, and while there is always some discretion, largely a borrower meets the loan criteria, or he does not, and if he does. no, no luck for him.

Laura and Nathaniel Warmington and their two year old daughter Yolanda pictured outside their new home in Glenn Innes, Auckland.  They have a mortgage from the Simplicity KiwiSaver program.

LAWRENCE SMITH / Tips

Laura and Nathaniel Warmington and their two year old daughter Yolanda pictured outside their new home in Glenn Innes, Auckland. They have a mortgage from the Simplicity KiwiSaver program.

What makes a bank refuse customers?

This is usually not the deposit. The kinds of things that send people to non-bank establishments are simply missing the accessibility measures of banks, having an uneven credit record, being newly independent, or engaging in small-scale development, like the subdivision of a company. section.

A mortgage advisor told me this week that 40% of people who turned down a bank loan don’t go any further.

It is important to learn from what the bank says, but it is by no means the end of the road.

For many people, “no” to the bank actually means “not yet”.

So if a bank shakes its head, find out why and head to a mortgage advisor. It was a good decision for many people.

Imagine the wealth chasm between two people who were turned down by banks in 2019, one of whom gave up and the other who got a loan from a non-bank organization to buy a house.

Whoever secured the house (and managed to keep it) would make tens, if not hundreds of thousands of dollars, at least on paper.

Yes, they might have paid $ 10 in interest for every $ 8 a bank borrower paid, but that would only be a temporary thing until their bank refinances them.

But I will issue a warning here. Banks may not be your friends, but they have a great reputation to nurture. They hate mortgage sales.

I’m not saying that non-bank lenders are more willing to sell a borrower’s house, but by definition the loans they make carry more risk and borrowers need to be very careful.

Non-bank lenders always require large amounts of equity in a property. This means that they still get their money even if the borrowers miss their payments.

Every borrower should borrow with caution.

GOLDEN RULES

  • Don’t take “no” for an answer
  • Ask for advice
  • Proceed with caution. Lenders are not your friends


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