Common pitfalls and practical steps for a securing a successful Bond Application

When it comes to securing a home loan or bond for your next property purchase, it’s essential to be prepared, well-informed, and proactive. Understanding the dos and don’ts of the bond application process can significantly increase your chances of approval, help you avoid common mistakes, and ensure a smooth, efficient experience.

Bradd Bendall, National Head of Sales at BetterBond, shares key insights on how to maximise your bond application’s success and the common pitfalls that can cause delays or derail the process altogether.

Key highlights

• Pre-Approval: Get pre-approved to improve your chances, speed up the process, and make a stronger offer to sellers.
• Pay a Deposit: A higher deposit reduces lending risk, increasing your chance of securing a bond with a better interest rate.
• Work with Experts: Bond originators streamline the process, help you navigate paperwork, and increase your chances of getting better rates.

The Importance of Pre-Approval

One of the first steps in the bond application process should always be to seek pre-approval. According to Bendall, “The approval rate for clients who first get pre-approval with BetterBond is 95% of all applications submitted on their behalf.”

This simple yet crucial step not only helps you determine how much you can afford but also makes you a more attractive buyer when you make an offer on a property. Pre-approval provides insight into your purchasing power and boosts your credibility with sellers.

‍A pre-approval certificate is valid for 90 days and can be done at no cost, which means it’s an affordable and risk-free option to give you a clearer picture of what you can afford. Bendall further explains, “Pre-approval improves your chances of getting a bond and speeds up the application process. It also enables you to make a firm offer to purchase (OTP), which is a big advantage in a competitive property market.”

The Deposit Dilemma

Another factor that can significantly impact your bond application is your ability to pay a deposit. While some buyers may feel reluctant to part with a lump sum, paying a deposit on your property can improve your chances of securing a bond and may even result in a lower interest rate. Bendall highlights the importance of deposits: “The higher the deposit, the better your chance of securing a bond. It sends a message to the banks that you are a lower lending risk.”

A larger deposit shows the lender that you’re financially responsible and capable of saving. It also makes you a more attractive buyer to the seller, as it demonstrates your seriousness and financial readiness. When lenders perceive you as a lower-risk borrower, they’re more likely to offer a lower interest rate, which will save you money in the long run.

Working with Experts: The Role of a Bond Originator

Navigating the bond application process can be daunting, especially for first-time buyers. That’s where a bond originator comes in. A bond originator can manage the entire process, from pre-approval to submitting applications to multiple banks, ensuring that your application is handled with expertise and efficiency.

Bendall explains, “A bond originator will manage all the paperwork and write loan motivations to help you secure a more favourable interest rate. They also ensure that your application is submitted to the right banks.”

Moreover, bond originators can identify any potential issues with your application before it is submitted. They can flag problems with your credit score or highlight missing documentation so that you have the chance to fix them before applying for a bond. Bendall emphasizes, “A bond originator can advise you on issues that might count against you and help address them before submitting your application to the bank.”

Bond originators are also well-versed in the requirements for government subsidies, such as the First Home Finance subsidy, and can help you apply for these if you qualify.

Understanding the Pitfalls: Common Mistakes to Avoid

While there are steps you can take to improve your chances of securing a bond, there are also several common pitfalls that can delay or derail your application.

Breakdown of some of the most common mistakes and how to avoid them:

1. Not Knowing Your Credit Score
   Your credit score plays a critical role in the bond approval process. Lenders will use your credit score to assess your financial reliability. If you don’t know your credit score, you’re flying blind when applying for a bond. Bendall recommends checking your credit score before applying: “Get a copy of your credit score from the credit bureau so you know where you stand.” This will give you insight into your financial health and allow you to address any issues that could negatively impact your application.
2. Managing Credit Poorly
   While having credit is necessary for establishing your financial history, excessive or poorly managed credit can hurt your bond application. Make sure to keep your credit card balances low and avoid missing payments, as these actions can negatively affect your credit rating. Bendall cautions, “While some credit is good, late or missed payments will hurt your credit score, which in turn reduces your chances of securing a bond.”
3. Excessive Credit Card Debt
   Your credit card debt is viewed by banks as part of your total debt load. If you have high outstanding balances on your credit cards or store accounts, it can hurt your bond application. Bendall advises, “Try to avoid unnecessary credit when applying for a bond. Banks will factor in all your outstanding debts, including credit card debt.”
4. Not Having the Right Documents
   Banks require a range of documents to process your bond application. Missing or incomplete documents can delay your application or cause it to be rejected altogether. Make sure you have the necessary paperwork ready, including recent bank statements, proof of income, and signed letters from auditors if you’re self-employed. Bendall adds, “Make sure all your personal and financial information is in order before you submit your application. This will save you time and avoid unnecessary delays.”
5. Multiple Recent Credit Applications
   Too many recent credit applications in a short period can be a red flag for banks. It can indicate that you are financially struggling or seeking credit that you can’t afford. Bendall cautions, “Too many credit applications can signal financial distress to lenders. Keep your credit applications to a minimum in the months leading up to your bond application.”
6. Low Monthly Income
   Your income is a key consideration when applying for a bond. Lenders will evaluate your ability to repay the loan based on your income and expenses. If your income is low, it could hurt your chances of approval. Bendall suggests using an online affordability calculator to determine whether you can afford the monthly bond repayments. “The accepted rule of thumb is that your bond should be no more than 30% of your monthly income,” says Bendall.
7. Misrepresenting Information
   Finally, being dishonest on your bond application can result in immediate rejection or even legal consequences. Always provide truthful and accurate information. Bendall warns, “Lying on your bond application is considered fraud. Banks can cancel your loan or refuse to consider future applications.”

Prepare, Plan, and Seek Professional Help

Securing a bond requires careful planning and preparation. By working with experts, getting pre-approved, and avoiding common pitfalls, you can significantly improve your chances of success. As Bendall puts it, “Buying a home is a long-term investment that involves careful consideration. By working with a professional who can guide you through the process, you have a much better chance of success.”

In the end, a little effort and foresight can go a long way in ensuring that your bond application is successful. By avoiding common mistakes and seeking professional advice, you’ll be in a much stronger position to achieve your property goals.

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