Whether you are just starting out or a seasoned property investor your lending institution possesses important criteria that must be satisfied if you are to proceed down the road of investing, growing and holding your wealth in real estate.
So what do the lending institutions look for when considering the benefits and risks of lending money?
We have a favourite list called the 5Cc’s of Success that Fountain Property Group would like to unpack for you. Every lending institution will assess these five things.
- Credit worthiness
Let’s start at the beginning.
A good way to start your journey to fortune is to set down a good base on which to build. You may not realise it but your every credit move is monitored and defaults on loans are reported.
This means the television, sound system, or white goods you purchased on your Myer card. It means that personal loan you took out to buy a new car. It means the credit card you use for everyday expenses.
To achieve excellent credit worthiness, it is essential to have a proven record highlighting you honouring your part of the bargain by paying the required amount on time, every time.
In most cases, a lending institution will require you have some money behind you to help finance your venture. This figure may range from a 10% – 50% deposit and is governed by the outcome according to the other four C’s.
There is not a lending institution alive that would lend money without ensuring that their risk is covered. This will usually come from the asset being purchased but may come from other sources such as other property or possessions.
Your ability or capacity to pay the minimum required payment will also be assessed. During this assessment, your other commitments must be taken into account. It is imperative to prove that your current income covers your current commitments and can incorporate further debt.
All sources of income can be offered for assessment. These may include:
- Wages from your place of employment
- Rental income
- Stocks and Bonds
- Passive income
Whilst it is unlikely that your bank will require you to be submitted to a psychological test it does not mean that your character cannot be assessed. Vital information can be gleaned from the simple knowing of your employment record and living conditions.
By this, we mean the bank wants to see a record of steady employment; the longer the better. The same goes for your living conditions. Whether you stay in one place or move around a lot will also be assessed.