Need home loan advice

[Power Raid]

Hopefully this thread isn’t dead. Hasnt seen activity for nearly 12 months.

late first home buyer (over 40) about to sign a contract on a $900k property.

$64k genuine savings
$180k inheritance
$244k in total for those without an abacus

joint income enough to service without issue. Long term stable employment for both. Serviceability (NSR) at around 1.45 based on using 20% deposit. Remainder used to cover stamps, legal etc with some left over to keep for renos (approx 25k)

wife’s credit history is clean

mine has a few too many enquires back in 2018 when we got married but otherwise fine.

very anxious FHB as we have found the perfect home.

what should I look out for?

1) get an offset account
2) get a broker to assess your best loan options but exclude two or three banks and advise you will go direct to these to generate competitive tension (essentially make the broker work harder or lose business)
3) consider borrowing $900k rather than 80% as you may get a lower interest rate by borrowing more
4) before you apply reduce your credit card limits to minimum as this works against your borrowing capacity. You can increase straight afterwards
5) what ever the banks offer, counter by asking for lower fees or interest (even if for a limited period)

oh and don't tell the banks you got an inheritance. They hate this.

what they want to hear is you live within your means and save money.

 

[Lord_Flashheart]

1) get an offset account
2) get a broker to assess your best loan options but exclude two or three banks and advise you will go direct to these to generate competitive tension (essentially make the broker work harder or lose business)
3) consider borrowing $900k rather than 80% as you may get a lower interest rate by borrowing more
4) before you apply reduce your credit card limits to minimum as this works against your borrowing capacity. You can increase straight afterwards
5) what ever the banks offer, counter by asking for lower fees or interest (even if for a limited period)

oh and don't tell the banks you got an inheritance. They hate this.

what they want to hear is you live within your means and save money.

Thanks,

1) yes this seems like a good idea
2) Don't mind this as well, we are already talking to a broker
3) not sure about this suggestion, are you saying borrow 100%? Not sure if this is even possible especially for a first home buyer, I would need at least 5%. LMI would then be around $40k
4) We have two credit cards each for a total of $20k, balance is at about 50% but I understand that they factor in the limit rather than the balance
5) I am not sure how much power I have to negotiate at this stage

Why the objection to an inheritance? The bank is still only covering 80% of the value of the home which should minimise the risk, they are going to notice the big deposit coming into the account anyway, not much I can do about it.

 

[Power Raid]

Thanks,

1) yes this seems like a good idea
2) Don't mind this as well, we are already talking to a broker
3) not sure about this suggestion, are you saying borrow 100%? Not sure if this is even possible especially for a first home buyer, I would need at least 5%. LMI would then be around $40k
4) We have two credit cards each for a total of $20k, balance is at about 50% but I understand that they factor in the limit rather than the balance
5) I am not sure how much power I have to negotiate at this stage

Why the objection to an inheritance? The bank is still only covering 80% of the value of the home which should minimise the risk, they are going to notice the big deposit coming into the account anyway, not much I can do about it.

the credit cards balance is high, so just consider if you actually need that
I always have 100% mortgage over assets but 100% cover in my offset

In regards to bank loans they will assess debt equity ratio, income debt ratio but also your ability to service the loan without changing your lifestyle. Savings demonstrates your capacity to repay where inheritance is ignored as a windfall. You will definitely get a loan, but this is about getting the best loan on your terms thus "work it", "sell it" and tell the banks what you want rather than "accept it".

 

[Lord_Flashheart]

the credit cards balance is high, so just consider if you actually need that
I always have 100% mortgage over assets but 100% cover in my offset

In regards to bank loans they will assess debt equity ratio, income debt ratio but also your ability to service the loan without changing your lifestyle. Savings demonstrates your capacity to repay where inheritance is ignored as a windfall. You will definitely get a loan, but this is about getting the best loan on your terms thus "work it", "sell it" and tell the banks what you want rather than "accept it".

Whilst I doubt it is uncommon at the moment, our rent + savings contribution each week is actually more than what the repayments would be on this loan.

 

[Lord_Flashheart]

the credit cards balance is high, so just consider if you actually need that
I always have 100% mortgage over assets but 100% cover in my offset

In regards to bank loans they will assess debt equity ratio, income debt ratio but also your ability to service the loan without changing your lifestyle. Savings demonstrates your capacity to repay where inheritance is ignored as a windfall. You will definitely get a loan, but this is about getting the best loan on your terms thus "work it", "sell it" and tell the banks what you want rather than "accept it".

Just used a simple online tool to calculate DTI (whilst including a loan of $728,800) and it came up at 4.07, how does this compare?.

 

[Halloween Jack]

the credit cards balance is high, so just consider if you actually need that
I always have 100% mortgage over assets but 100% cover in my offset

In regards to bank loans they will assess debt equity ratio, income debt ratio but also your ability to service the loan without changing your lifestyle. Savings demonstrates your capacity to repay where inheritance is ignored as a windfall. You will definitely get a loan, but this is about getting the best loan on your terms thus "work it", "sell it" and tell the banks what you want rather than "accept it".

How are you borrowing 100%, are you offering additional security or paying mortgage insurance?

 

[Halloween Jack]

Whilst I doubt it is uncommon at the moment, our rent + savings contribution each week is actually more than what the repayments would be on this loan.

Most (not all) banks will not care if the funds are from an inheritance or savings, so long as you are borrowing 80% or less of the purchase price.

Also, with your credit cards, if funds allow pay off the balance. It will not change anything re getting a loan (so long as banks can see you are at least making the minimum repayment each month you are ok) but the interest on those are a killer.

 

[Power Raid]

How are you borrowing 100%, are you offering additional security or paying mortgage insurance?

simply tell the bank what you want

On purchase I tell them how I want it structured and why. Then on refinancing which is every 5 years as I need interest only loans rather than interest and principle, as for me it is not about finance but insurance, I have a valuation done maintaining 100% of the revised market value.

I run my own businesses and thus exposed to "deepest pockets" litigation. Having 100% loans and offset means I pay no interest but can shift wealth offshore with a key stroke.

 

[Power Raid]

Most (not all) banks will not care if the funds are from an inheritance or savings, so long as you are borrowing 80% or less of the purchase price.

Also, with your credit cards, if funds allow pay off the balance. It will not change anything re getting a loan (so long as banks can see you are at least making the minimum repayment each month you are ok) but the interest on those are a killer.

I guarantee the credit card limit will be added into the debt equity ratio

 

[Power Raid]

Just used a simple online tool to calculate DTI (whilst including a loan of $728,800) and it came up at 4.07, how does this compare?.

I'm not a loan broker but I'd say well done!

 

[Halloween Jack]

simply tell the bank what you want

On purchase I tell them how I want it structured and why. Then on refinancing which is every 5 years as I need interest only loans rather than interest and principle, as for me it is not about finance but insurance, I have a valuation done maintaining 100% of the revised market value.

I run my own businesses and thus exposed to "deepest pockets" litigation. Having 100% loans and offset means I pay no interest but can shift wealth offshore with a key stroke.

Just so I'm clear, are you saying you are able to finance property at 100% of the valuation, on interest only terms, with no additional security and no LMI or other fees? If this can happen I'm very interested.

 

[Oraaaaazio]

the credit cards balance is high, so just consider if you actually need that
I always have 100% mortgage over assets but 100% cover in my offset

In regards to bank loans they will assess debt equity ratio, income debt ratio but also your ability to service the loan without changing your lifestyle. Savings demonstrates your capacity to repay where inheritance is ignored as a windfall. You will definitely get a loan, but this is about getting the best loan on your terms thus "work it", "sell it" and tell the banks what you want rather than "accept it".

I obviously have no idea how all your lending is set up though I am familiar with your posts & that you have quite a few investments so your situation is clearly different but it just isn't possible with major lenders for Joe Citizen to borrow 100% of the value of their only home even if they were to keep the excess funds in offset or use it for renovations and it hasn't been for years.

Some institutions are refusing 5% deposits, requiring 10% or even more as a deposit for certain property locations even with LMI. For your run of the mill borrower, cash out refinancing is harder, interest only loans are more limited etc.

Don't disagree with the rest of what you've said or even the principle of that suggestion, borrowing more can mean you are eligible for a better interest rate. They'll assess your borrowing capacity as if your credit card limit(s) was fully expended and you are making min. repayments on the card limit. Get rid of those if you can for sure.

I understand everything you mentioned was not necessarily advice & a just few things to look into or to query though the 100% LVR just isn't going to happen.

 

[Oraaaaazio]

Just so I'm clear, are you saying you are able to finance property at 100% of the valuation, on interest only terms, with no additional security and no LMI or other fees? If this can happen I'm very interested.

Not possible for your average borrower to borrow 100%, much less with interest only terms for property you're going to occupy

 

[Power Raid]

I obviously have no idea how all your lending is set up though I am familiar with your posts & that you have quite a few investments so your situation is clearly different but it just isn't possible with major lenders for Joe Citizen to borrow 100% of the value of their only home even if they were to keep the excess funds in offset or use it for renovations and it hasn't been for years.

Some institutions are refusing 5% deposits, requiring 10% or even more as a deposit for certain property locations even with LMI. For your run of the mill borrower, cash out refinancing is harder, interest only loans are more limited etc.

Don't disagree with the rest of what you've said or even the principle of that suggestion, borrowing more can mean you are eligible for a better interest rate. They'll assess your borrowing capacity as if your credit card limit(s) was fully expended and you are making min. repayments on the card limit. Get rid of those if you can for sure.

I understand everything you mentioned was not necessarily advice & a just few things to look into or to query though the 100% LVR just isn't going to happen.

Everyone's banking is different but the principle remains the same. Approach a bank like a job interview.

Prepare before you walk in and set up your finances and lifestyle
- reduce spending for a decent period before you walk in
- reduce credit card limits
- show a healthy savings and savings rate

Know exactly what you need
- how much to borrow
- an offset account

Be open to additional services
- use a broker for ideas
- consider borrowing more than you need to reduce interest rates and monthly charges

Never accept their first offer
- don't be embarrassed to negotiate and always negotiate with a smile
- "com'n you can do better than that", I'll shift my cards with you and have a month end repayment of the card connected to the mortgage
- create competitive tension with direct ban approaches and separately a broker

 

[PieLebo87]

Everyone's banking is different but the principle remains the same. Approach a bank like a job interview.

Prepare before you walk in and set up your finances and lifestyle
- reduce spending for a decent period before you walk in
- reduce credit card limits
- show a healthy savings and savings rate

Know exactly what you need
- how much to borrow
- an offset account

Be open to additional services
- use a broker for ideas
- consider borrowing more than you need to reduce interest rates and monthly charges

Never accept their first offer
- don't be embarrassed to negotiate and always negotiate with a smile
- "com'n you can do better than that", I'll shift my cards with you and have a month end repayment of the card connected to the mortgage
- create competitive tension with direct ban approaches and separately a broker

Nailed it

 

[Lord_Flashheart]

Okay, I have hit a snag. As my wife and I recently got married (after I separated from my previous, taking little furniture) when we moved in we did a fair bit of interest free purchasing to fill the home with new furniture which has shown up through 2018-2019 in my credit report. My overall rating number is pretty good (not quite excellent) but I am concerned that all of these enquiries are going to cause an overly careful lender to reject us.

Any thoughts on this?, keeping me awake at night. My broker, who is excellent at everything else says that this could exclude up to 85% of the borrowers that would lend to me and he is going to check in each case as to which borrowers would be willing to overlook it. Incredibly frustrating given everything else seems to line up okay.

 

[Lord_Flashheart]

I should follow this up with - the purchases have been paid off and accounts have been closed. But they are in the report so are making me nervous.

 

[Power Raid]

Okay, I have hit a snag. As my wife and I recently got married (after I separated from my previous, taking little furniture) when we moved in we did a fair bit of interest free purchasing to fill the home with new furniture which has shown up through 2018-2019 in my credit report. My overall rating number is pretty good (not quite excellent) but I am concerned that all of these enquiries are going to cause an overly careful lender to reject us.

Any thoughts on this?, keeping me awake at night. My broker, who is excellent at everything else says that this could exclude up to 85% of the borrowers that would lend to me and he is going to check in each case as to which borrowers would be willing to overlook it. Incredibly frustrating given everything else seems to line up okay.

Can you pay these off immediately?

Interest free loans can be a time bomb, where you are charged interest over the entire amount over the entire period if not strictly adhered to. If already paid off, then no issues.

oh and I'm glad to hear you are using a broker.

 

[Lord_Flashheart]

Can you pay these off immediately?

Interest free loans can be a time bomb, where you are charged interest over the entire amount over the entire period if not strictly adhered to. If already paid off, then no issues.

oh and I'm glad to hear you are using a broker.

Thanks, if all paid off then I am not sure why my broker is stating that up to 85% of lenders might not want to give me a loan. I've still got three weeks until we go unconditional, not sure I can handle this level of anxiety for that long. Does every first home buyer go through this?

 

[Power Raid]

I should follow this up with - the purchases have been paid off and accounts have been closed. But they are in the report so are making me nervous.

ah I just saw this

no issues then.

for future reference, lots of applications for credit also impact your application. So buying 10 different items on credit, triggering a credit check (whether you take the credit or not) does work against you.

 

[Halloween Jack]

Okay, I have hit a snag. As my wife and I recently got married (after I separated from my previous, taking little furniture) when we moved in we did a fair bit of interest free purchasing to fill the home with new furniture which has shown up through 2018-2019 in my credit report. My overall rating number is pretty good (not quite excellent) but I am concerned that all of these enquiries are going to cause an overly careful lender to reject us.

Any thoughts on this?, keeping me awake at night. My broker, who is excellent at everything else says that this could exclude up to 85% of the borrowers that would lend to me and he is going to check in each case as to which borrowers would be willing to overlook it. Incredibly frustrating given everything else seems to line up okay.

pay them off and cancel if you can. The lenders treat them as an expense per month, similar to a credit card. EG, a $10k credit card limit or interest free loan will add roughly $300 per month to your assessed expenses, (even if you pay off the card in full each month) which can make the difference between getting the loan amount you want.

 

[Halloween Jack]

ah I just saw this

no issues then.

for future reference, lots of applications for credit also impact your application. So buying 10 different items on credit, triggering a credit check (whether you take the credit or not) does work against you.

Exactly what this guy said.

 

[Power Raid]

Thanks, if all paid off then I am not sure why my broker is stating that up to 85% of lenders might not want to give me a loan. I've still got three weeks until we go unconditional, not sure I can handle this level of anxiety for that long. Does every first home buyer go through this?

based on what you have represented, this will not be an issue but perhaps the broker is seeing a different angle.

In future though, always have offers subject to conditions. Subject to:
- a builders report to the satisfaction of the buyer
- credit subject to the satisfaction of the buyer

Put down a fully refundable but large deposit, to offset the sellers concerns

it mitigates risk and helps you sleep



good luck and try and not stress!




FTR if you were a lender not a borrower and you saw "mugs lending" (retravision, harvey norman, credit cards you didn't pay off at months end, ridiculous insurance premiums and high monthly subscriptions such as netflix, spotify, mobile, a TAB account etc) what would you think about an applicants financial knowledge and ability to control themselves?

Having a little fun is OK but try and stay away from these things as much as possible until one can truly afford to "burn money".

 

[PieLebo87]

Thanks, if all paid off then I am not sure why my broker is stating that up to 85% of lenders might not want to give me a loan. I've still got three weeks until we go unconditional, not sure I can handle this level of anxiety for that long. Does every first home buyer go through this?

If you’ve paid these all off, that can only be a good thing for the lender. It shows your ability to take on debt and repay it within its due time. Obtaining evidence of these with closure letters can be used as a mitigate by your broker when seeking manual approvals from lenders who question all the credit queries, turning a negative into a positive for you.

 

[Scottroo]

I have a mortgage with about 350k left

my property has sky rocketed in the last 6 months upto 550k.

I want to use the equity to do some renovations but a year ago I signed on for a fixed rate loan for 4 years.

what are my options and how much would it cost to change