Need home loan advice

[Hamingja]

I’d agree with you but it astounds me the amount of customers in retail we give a borrowing capacity to, only for them to go to a broker who miraculously gives them a higher amount using our own same policy. I guess the general living expenses magically change when the broker is writing the deal. If anything, it is now paramount that we ensure we don’t get our customers into financial hardship and the priority (finally) is to ensure both the bank and customer are well protected instead of worrying about ‘the sale’.

I had one once from a broker where there were two couples that were buying an investment property together. They both claimed to have recently built a granny flat out the back of their owner occupied properties and produced rental appraisal letters for them. They needed this to service so I'm calling bullshit on this right away but to top it off we had both the owner occupied properties as securities and they did all their banking with us. Quick look at their accounts and no payments to builders or anything like that, no applications for consent to vary their securities, nothing. I declined it and about a week later got a call from the broker tearing shreds off me because the customers walked into a branch after I declined it and some chump at the branch approved it and of course the broker misses out on his commission in this scenario and the bank still writes the loan.

 

[PieLebo87]

I had one once from a broker where there were two couples that were buying an investment property together. They both claimed to have recently built a granny flat out the back of their owner occupied properties and produced rental appraisal letters for them. They needed this to service so I'm calling bullshit on this right away but to top it off we had both the owner occupied properties as securities and they did all their banking with us. Quick look at their accounts and no payments to builders or anything like that, no applications for consent to vary their securities, nothing. I declined it and about a week later got a call from the broker tearing shreds off me because the customers walked into a branch after I declined it and some chump at the branch approved it and of course the broker misses out on his commission in this scenario and the bank still writes the loan.

I can catogorically tell you it wouldn’t have gotten through my credit coaches. I’ve had the exact same scenario which I had to decline because the bank cannot use rental income in any capacity for an owner occupied property. Either that banker has put their their owner occupied property as an investment and added rental expenses to their application or they’ve BS to the bank. Definitely cannot use rental income for an owner occupied in our policy. I getcha though, there’s unethical practices everywhere, thus the royal commission.

 

[kaiserchief13]

I can catogorically tell you it wouldn’t have gotten through my credit coaches. I’ve had the exact same scenario which I had to decline because the bank cannot use rental income in any capacity for an owner occupied property. Either that banker has put their their owner occupied property as an investment and added rental expenses to their application or they’ve BS to the bank. Definitely cannot use rental income for an owner occupied in our policy. I getcha though, there’s unethical practices everywhere, thus the royal commission.

Why can't someone rent out a room in an owner occupied and use that rental income in the assessment? Because it's too hard to police?

 

[chargers 09]

Why can't someone rent out a room in an owner occupied and use that rental income in the assessment? Because it's too hard to police?

How would you verify it? And confirm it will be long term?


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[Hamingja]

How would you verify it? And confirm it will be long term?


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You generally won't use it unless it is an exceptional situation and you only need a small fraction of it to get a deal to work but the way you would verify it is from a tax return. Most people are not declaring the income to the tax man though are they.

 

[chargers 09]

You generally won't use it unless it is an exceptional situation and you only need a small fraction of it to get a deal to work but the way you would verify it is from a tax return. Most people are not declaring the income to the tax man though are they.

Well that’s what I meant, the income one of the other posters was taking about earlier is unable to be verified.


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[PieLebo87]

Well that’s what I meant, the income one of the other posters was taking about earlier is unable to be verified.

As per our policy, we can’t use any rental income for an owner occupied property, but if it’s proven to be true beyond reasonable doubt (tax return, rental agreement ect.) we can use a policy waiver.

 

[Simon_Nesbit]

Also, re brokers, whilst they may give you far more options, they may not be the best path to take when getting a home Loan because as soon as you’ve gotten the loan (and they’ve gotten their commission) you’re on your own. If you go through the bank directly, you build that relationship from the get go and when it’s time to review your loan in 12-24 months time, you’ve got someone/branch to go back to.

Wow, that's exactly the opposite of how Mortgage Brokers and Banks operate. The time commitment to getting a loan through for a new client almost invariably makes them low or no-profit cases. It's repeat business that is the lifeblood of the Broking industry.

Similarly, banks maximise profits through giving minimal service/retention to existing customers, and relying on general laziness of the population to not both researching or refinancing.

You must have had a really lousy broker.

Edit: Reading further - or work at a unicorn bank

 

[PieLebo87]

Wow, that's exactly the opposite of how Mortgage Brokers and Banks operate. The time commitment to getting a loan through for a new client almost invariably makes them low or no-profit cases. It's repeat business that is the lifeblood of the Broking industry.

Similarly, banks maximise profits through giving minimal service/retention to existing customers, and relying on general laziness of the population to not both researching or refinancing.

You must have had a really lousy broker.

Edit: Reading further - or work at a unicorn bank

As I said previously, I only comment because of the regular complaints I receive from broker customers. Once the commission is paid, a few simply go AWOL and the customer is left stranded.

Bank profits rely on customer retention too, so what you’ve said doesn’t make sense.

We’ll agree to disagree.

 

[craffles]

Hi Guys,

Based on some real crude maths what do you think the minimum $ deposit you reckon you’d need to buy a $650-$700K house in the current lending climate is?

Getting a lot of mixed numbers from our broker/s and the bank. Our ability to service the mortgage not an issue as 2 incomes and we’ve both just had some significant pay rises but taking a little longer to save the deposit than first thought. Currently have approx $50K saved


Thanks,

Craffles

 

[Upgrayedd]

Hi Guys,

Based on some real crude maths what do you think the minimum $ deposit you reckon you’d need to buy a $650-$700K house in the current lending climate is?

Getting a lot of mixed numbers from our broker/s and the bank. Our ability to service the mortgage not an issue as 2 incomes and we’ve both just had some significant pay rises but taking a little longer to save the deposit than first thought. Currently have approx $50K saved


Thanks,

Craffles

Hey mate.

Just went though thus.

Me And my partner had an issue as I wasn't over the probation period for my job (9 months) we couldn't get anything without hitting that magic 20% deposit figure.

 

[craffles]

Hey mate.

Just went though thus.

Me And my partner had an issue as I wasn't over the probation period for my job (9 months) we couldn't get anything without hitting that magic 20% deposit figure.

Yikes that sucks.

I’ve been at my employer for 8 years and my partner has been with hers for 6 which should help and we can service a significantly higher amount than we are looking to borrow.

 

[Hamingja]

Hi Guys,

Based on some real crude maths what do you think the minimum $ deposit you reckon you’d need to buy a $650-$700K house in the current lending climate is?

Getting a lot of mixed numbers from our broker/s and the bank. Our ability to service the mortgage not an issue as 2 incomes and we’ve both just had some significant pay rises but taking a little longer to save the deposit than first thought. Currently have approx $50K saved


Thanks,

Craffles

Ideally you probably want a 12% + costs deposit as a minimum. That's not so much to do with lending standards but the cost of LMI. Anything over 88% + capped LMI starts to become prohibitive as far as the LMI premium goes and with the real estate market sluggish there is no rush to jump in and eat the big premiums atm IMO.

If you are smashing servicing and meet the minimum for time in employment / time in industry then theorectically if you are buying a house (and not an apartment or townhouse etc which might be limited to 80% LVR or lower depending upon where it is) you could borrow up to 95% inclusive of LMI premium. The LMI premium at that LVR for that amount would be like $20-$30k though so better off saving as much as you can.

 

[Hamingja]

Hey mate.

Just went though thus.

Me And my partner had an issue as I wasn't over the probation period for my job (9 months) we couldn't get anything without hitting that magic 20% deposit figure.

Pretty poor broker there if they can't get it done when you have been in your job for over 6 months, doubly so if you have previous experience in the industry.

 

[Upgrayedd]

Contract was killer, Over 7 months, Contract specifically said on probation 9 months, Bankwest wouldnt budge on that. wasnt a huge worry as we went with another bank however interest rate was about 0.20% higher on the fixed portion of the loan.

 

[craffles]

Ideally you probably want a 12% + costs deposit as a minimum. That's not so much to do with lending standards but the cost of LMI. Anything over 88% + capped LMI starts to become prohibitive as far as the LMI premium goes and with the real estate market sluggish there is no rush to jump in and eat the big premiums atm IMO.

If you are smashing servicing and meet the minimum for time in employment / time in industry then theorectically if you are buying a house (and not an apartment or townhouse etc which might be limited to 80% LVR or lower depending upon where it is) you could borrow up to 95% inclusive of LMI premium. The LMI premium at that LVR for that amount would be like $20-$30k though so better off saving as much as you can.

Looking at houses in outer east Melbourne. Smashing servicing as we are planning to set the mortgage up so my partner can not work when we have kids. We just don’t have the full 20% saved due to travelling overseas and moving around Australia quite a bit the last 8 years. Strong savings record last two years though.

I guess what I’m saying is we meet your criteria so are you implying that the best case scenario from your experience for a $700K house we could get away with would be $35K deposit approx $25K for LMI and $30K for stamp duty so circa $90K

Screenshot the table our broker has given us for minimum $ amount required below as an FYI

 

[craffles]

Also just a caveat that I am aware that whatever advice I receive here is just opinion and just that

We have booked in with another broker and bank to get a few more professional views, I’m just not the most knowledgeable guy in this space and there’s some pretty smart brains to rack on here

 

[PieLebo87]

Looking at houses in outer east Melbourne. Smashing servicing as we are planning to set the mortgage up so my partner can not work when we have kids. We just don’t have the full 20% saved due to travelling overseas and moving around Australia quite a bit the last 8 years. Strong savings record last two years though.

I guess what I’m saying is we meet your criteria so are you implying that the best case scenario from your experience for a $700K house we could get away with would be $35K deposit approx $25K for LMI and $30K for stamp duty so circa $90K

Screenshot the table our broker has given us for minimum $ amount required below as an FYI



View attachment 689745

The above is correct.

LMI is the killer when borrowing above 88% LVR. You’d rather save a little more and contribute it towards your house than pay it to an insurer to protect the bank.

The alternative is if you’re a medical practitioner or bank employee, than I can get you up to 90% with no LMI.

 

[craffles]

The above is correct.

LMI is the killer when borrowing above 88% LVR. You’d rather save a little more and contribute it towards your house than pay it to an insurer to protect the bank.

The alternative is if you’re a medical practitioner or bank employee, than I can get you up to 90% with no LMI.

Agree exactly with what you are saying but when you pay the same amount in rent over 12 months as what LMI is but it means you can get in 12 months earlier and start paying the asset down does it make more sense to do it that way?

 

[PieLebo87]

Agree exactly with what you are saying but when you pay the same amount in rent over 12 months as what LMI is but it means you can get in 12 months earlier and start paying the asset down does it make more sense to do it that way?

You’re right, but it depends on how much you’re going to borrow.

For example, if you’re buying for $700,000 and borrowing close to 95%, you’re looking at over $30,000 in LMI. Where as saving an extra $20,000 odd your LMI drops to around $15,000.

You’re right though you’d rather pay the LMI over the rent, so if you’re paying more than $350-$400 a week, it’d be worth it to cop the LMI hit.

 

[Hamingja]

Looking at houses in outer east Melbourne. Smashing servicing as we are planning to set the mortgage up so my partner can not work when we have kids. We just don’t have the full 20% saved due to travelling overseas and moving around Australia quite a bit the last 8 years. Strong savings record last two years though.

I guess what I’m saying is we meet your criteria so are you implying that the best case scenario from your experience for a $700K house we could get away with would be $35K deposit approx $25K for LMI and $30K for stamp duty so circa $90K

Screenshot the table our broker has given us for minimum $ amount required below as an FYI



View attachment 689745

On a $700k property in Victoria:

At 88% LMI, borrow base loan of $616,000 + capped LMI approx $10k = $626k total loan.

Deposit required at 88%, $700k + costs approx $30k (using brokers - looks about right) + LMI $10k - total loan amount $626k = $114k required.

To stay under maximum of 95% LMI capped, borrow base loan of $641,000 + capped LMI approx $24k = $665k total loan.

Deposit required to stay under maximum of 95% LMI capped, $700k + costs approx $30k + LMI $24k - total loan amount $665,000 = $89k required.

So maxxing out your position circa $90k savings at $700k would be the ballpark figure.

In the example above you are borrowing $25k extra base loan between the two scenarios but paying an extra $14k in LMI at the higher LVR which goes back to my first post.

It's also better to stay under 90% capped as far as getting final LMI approval as that would be based on the valuation of the security property. Valuers will usually rest on contract price for their assessed value for a purchase but are essentially as consistent as Michael Christian with their risk ratings so if they give you a couple of risk rating 4s for market risks the LMI provider may get a little nervous at 95%.

 

[Hamingja]

The downside risk of borrowing at 95% is the potential of ending up with negative equity in the property if the property market drops some more.

5 years ago you would just eat the LMI to get into the market as the property would go up more in 12 months than the LMI paid.

Currently the market is not like that so it's just up to how much risk you are willing to take to get in.

 

[PieLebo87]

The downside risk of borrowing at 95% is the potential of ending up with negative equity in the property if the property market drops some more.

5 years ago you would just eat the LMI to get into the market as the property would go up more in 12 months than the LMI paid.

Currently the market is not like that so it's just up to how much risk you are willing to take to get in.

I would’ve agreed with this comment 6-12 months ago but I think the market has corrected itself.

Whilst we won’t see substantial growth in market prices, property prices over the next 12 months will slowly start to grow as demand increases again, especially with the Libs in.

 

[Halloween Jack]

Also just a caveat that I am aware that whatever advice I receive here is just opinion and just that

We have booked in with another broker and bank to get a few more professional views, I’m just not the most knowledgeable guy in this space and there’s some pretty smart brains to rack on here

Mate, have you heard of parent guarantee? If It suits your situation it can save you the lmi cost. Ask your broker to explain- or pm me if you want more info (I'm a broker)

 

[craffles]

Mate, have you heard of parent guarantee? If It suits your situation it can save you the lmi cost. Ask your broker to explain- or pm me if you want more info (I'm a broker)

Unfortunately my partner and I don’t have this as an option. Good tip though.

I would’ve agreed with this comment 6-12 months ago but I think the market has corrected itself.

Whilst we won’t see substantial growth in market prices, property prices over the next 12 months will slowly start to grow as demand increases again, especially with the Libs in.

Have already seen it plateau in our area over the last month and seeing houses that have been on the market for a while starting to sell. Still much cheaper than 12-18 months ago though.