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What counts as genuine savings in a loan application?

What counts as genuine savings in a loan application?

If you apply for a home loan, particularly if the loan is for more than 80 per cent of a property’s value, you’ll more than likely have to prove to lenders that you have a satisfactory amount of savings. This is to demonstrate your ability to funnel a portion of your income into repayments.

Although it can differ, in most cases lenders generally look for consistent additions to savings over a period of at least three months and preferably a year or more. This means that the following are not considered genuine savings:● a cash gift● an inheritance● casino/other gambling winnings● proceeds of the sale of a non-investment asset ● government grants and other finance offered as incentives

Can I still get a loan without genuine savings?For those who don’t have any genuine savings but still want to obtain finance, there are options, these include:● Guarantor loans - Having a guarantor on your loan may mean that no deposit is required, with the equity or asset the guarantor stakes standing in for a deposit.● Other significant assets such as shares, managed funds and/or equity in residential property - Depending on your chosen lender, cash isn’t the only thing accepted as genuine savings. There are even situations where the sale of a vehicle can be considered as genuine savings if proved that it was owned for three months or more.● A strong rental record may see a lender allow you to forgo the genuine savings route - Some lenders will waive the requirements if a letter can be produced from a licensed real estate agent confirming that rent has been paid on time and in full for the preceding 12 months, as it highlights your ability to make repayments on time and on an ongoing basis.

“I regularly write loans for customers who do not have genuine savings using the aforementioned policy exceptions,” said the finance broker. “It’s just a matter of looking at their full situation and knowing which lender is going to have the policies to suit what you’re trying to achieve. This knowledge can only be achieved through experience and keeping in constant communication with lenders to know what their policy niches are.”Contact us today!

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Small business finance without the bank

Small business finance without the bank

It can be difficult to make a case to a bank when looking for finance to start a new business or invest in the growth of an existing one. The good news is that applying for commercial finance through a bank is far from the only option.

Personal loans

A relatively young enterprise that doesn’t have a track record of success may not be looked upon favourably by banks, which make lending decisions based on risk. A lack of documented history doesn’t aid a business loan application, so for those who still want to go through the bank they use for transaction accounts, a personal loan could be the way to go.

The downside may be slightly higher interest rates and lower loan amounts, but a personal loan can provide a good buffer for start-ups and application is relatively easy.

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Bridging loan or deposit bond?

Bridging loan or deposit bond?

When selling one property and purchasing another, the funds from the sale may not be available in time to use for the purchase deposit. There are typically two options in this scenario: a bridging loan and a deposit bond.

Bridging loan

A bridging loan is a shortterm home loan designed to allow you to initiate the purchase of a property before you have sold your previous one.

Loan terms are often between six and 12 months and bridging loans generally have a higher interest rate than traditional home loans.

This can be a great option but carries some risk. It’s important to know that you will be able to make the repayments even in a worst case scenario where your old house doesn’t sell as quickly as you’d hoped or where property values may change unexpectedly.

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Why property investors need savings

Why property investors need savings

Urgent maintenance is an unavoidable aspect of being a landlord, so having a cash buffer set aside will help you deal with any unexpected problems.

When renting out an investment property, having access to extra cash is vital for two reasons: ● to cover the costs of maintaining the property, giving it the best chance of remaining tenanted; and● to cover the cost of the mortgage should you lose your employment or rental income

“A buffer ensures that you are not stretched to your financial limits, but rather comfortable while on your investment journey,” advises a finance broker.

Ideally, your buffer would sit in an offset account against your mortgage, so that you have immediate access to the money while at the same time reducing the principal, and therefore the total interest payable on, your loan.

“Before calculating a buffer, I ensure my clients have a budget and savings plan in place that identifies their accurate living expenses and ability to save,” the broker says. “I would personally recommend a buffer of three to six months’ worth of loan repayments and living expenses.”

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Top ways to increase your savings and cut your expenses

Top ways to increase your savings and cut your expenses

Is the key to saving a home deposit as simple as giving up smashed avo toast for breakfast? Well not quite, but spending less does make a difference.

On top of a budget, a savings plan and strategies such as a high-interest savings account, an effective way to save is to reduce or eliminate expenses.

Start by understanding your spend

It can be easy to lose track of how you’re spending money, especially due to cashless payments and credit cards.

Find savings in the essentials

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How to save a deposit: house-sitting

How to save a deposit: house-sitting

One of the toughest parts of realising the dream of owning a home is saving for a deposit. The options seem pretty dismal – subsisting on a diet of beans on toast, never socialising, moving back in with the parents – and are almost enough to prompt a commitment to a life of renting. Of course, you may not have all the comforts of home, but house-sitting can even mean seeing a bit of the world while saving a deposit.

To help the savings grow without resorting to these options, many people house-sit while squirrelling away funds.

David and Ellen, a couple in their mid-20s, have saved almost $25,000 they would have used on bills and rent by house-sitting. It was an especially good financial decision when they were living on a single wage, with David working at the local bike shop as Ellen finished her final year at university.

Before they started house-sitting, David and Ellen were renting a small apartment in Mosman, NSW, and they estimate they have saved $22,000 in rent and approximately $2000 in bills by house-sitting.

Of course, it is much easier if you have flexibility in where you live and for how long, but the real key is an ambition to save.

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Do You Need a Financial Planner or a Finance Broker ?

Do You Need a Financial Planner or a Finance Broker ?

When taking the plunge into the world of home loans and property investment, the challenge often lies in knowing which expert to approach for help. Brokers and financial planners, although similar in their professional outlook, cater to different financial endeavours.

Brokers that deal in home loans must be qualified and licensed loan advisers with in-depth knowledge of home loans and options suitable for a range of different financial situations. They negotiate with lenders to arrange loans and help manage the process through to settlement.

 “When it comes to talking about a client’s debt structure or interest rates, or the best way to set up a loan, it’s really something that needs to be done by a mortgage broker who is qualified to give credit advice,” says the finance broker.

In contrast, financial planners assist with anticipating and managing longstanding financial outlook. They help sort through and select options for investment and insurance, with attention paid to retirement planning, estate planning and investment analysis.

“Financial planners take care of more of the long-term, wealth-creation strategy, as well as super and life insurance, and other sorts of wealth protection insurances,” the broker says.

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Rules of investment

Rules of investment

When you’re trying to secure finance for an investment property, it’s important to keep a few simple rules in mind to make sure you get the best deal possible and will be able to afford the repayments, come what may.

If you’re thinking about purchasing an investment property, it’s important to manage the risks adequately. For example, you shouldn’t rely on rental returns as a guaranteed income to meet loan repayments, as there are times when a property may be vacant or hard to fill immediately and some months the rental return on a property may be diminished by maintenance costs.

“A finance broker will help a borrower find the right product, so that he or she can afford the repayments,” said one helpful adviser. “The adviser will add a two per cent rate hike onto the rate the borrower will be looking to take, to make sure they can still make repayments if, or when, mortgage rates go up.”

With access to property data and trend analysis, a finance broker can pull property reports for you, detailing how the area has performed in the past as an investment, the average median house price or rate of return and how much the property values have increased over the past five or six years. These are details that investors generally can’t access.

Even better, if you meet a local finance broker in the area where you want to invest, he or she will know that particular market and be able to provide a lot of detailed information from working there every day.

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Case study: keeping your home despite family difficulties

Case study: keeping your home despite family difficulties

The stakes were high for Dave and Kaye, who were dealing with a child’s ill health and, as a result, extreme financial and emotional stress.

Dave and Kaye were facing a number of difficulties in their life. First, their second child had fallen seriously ill. The family was regularly flying interstate to a Melbourne hospital for the best treatment available, leading them to require time off work. Ultimately, the situation began to take a toll on their finances and they were struggling to juggle their mortgage and three overdrawn credit facilities. Not surprisingly, it was also taking its toll emotionally and Kaye developed depression, which led to further time away from work. That’s when their friends referred them to an accredited finance broker.

“Dave and Kaye were robbing Neil to pay Max. Not only were they staring down the barrel of losing their home, but they were battling the very challenging emotional strains of caring for an unwell child and a partner with depression,” their finance broker recalls.In such extreme circumstances, the broker employed the services of a debt collector for the first time. While the fees were hefty ($550 was payable on each refinanced facility, as well as 15 per cent of the total amount saved), it was imperative that the financial stress on the family was resolved as quickly as possible.

“It was a non-conforming situation, so I decided the debt collector was the simplest step to take,” says the broker. “He negotiated their collective credit card debt down from $48,000 to one payment of $15,000. I then arranged for a property valuation to be done and started to work backwards from there.”

The finance broker was also able to refinance Dave and Kaye’s home loan, negotiating far more manageable repayments that avoided them losing their home.

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How to Keep your Loan Application on Track?

How to Keep your Loan Application on Track?

Other than the obvious documentation that needs to accompany an application, satisfactory identification and evidence of income by way of pay slips, many lenders will expect to see a reference from your employer, group certificates or tax returns, and records of any investments or shares that you might have.

For the best possible chance of getting the loan that suits your circumstances, you need to tick all the boxes. If an application is not completed correctly, you risk delays in approval, or even being declined by potential lenders.

If you are self-employed, you will need to organise alternative documentation to prove income, such as financial statements relating to the profit and loss of your business going back two years.

Lenders will also want to see bank statements going back a few months in order to track your spending and savings history. Most importantly, you will need to provide the details of your debts.

You must include documents that outline debts, personal loans, credit card liabilities and any expenses relating to dependants. If you don’t disclose this information, your loan will very likely be declined.

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Who are the different parties involved in purchasing property?

Who are the different parties involved in purchasing property?

Purchasing a property is a thrilling yet nerve-wracking experience, which is why it can be handy to surround yourself with a network of support and expertise. Here are the different parties who may be involved in your home-buying process and how you can use this valuable knowledge base to answer your questions.

Real estate agentUnless you’re working with a private vendor, meeting a real estate agent is inevitable when it comes to purchasing a property. Hired by the vendor, or seller, their role is to market and communicate about the property, advise on preparing it for sale and negotiate with potential buyers.

Insurance companiesRisk management is vital in such a high-value purchase and long-term financial commitment. Insurance, including mortgage protection and property insurance, will help you avoid being hit with a major financial burden should anything not go according to plan. Many finance brokers can deal with insurance as well or will recommend an insurance broker who can. Finance brokerBrokers act as a liaison between you and the lender. They will find out about your finances and your property goals, and search for and negotiate a loan product that matches your needs. Not only will they do the legwork and ensure your loan is processed as smoothly as possible, but they are there to guide you throughout the entire process. LendersIf you need money to make your purchase, you will need a lender, whether it’s a major bank, a second-tier or non-major, or a specialist lender for more difficult funding proposals.

ConveyancerThe legal aspect of a property purchase is taken care by a licensed and qualified conveyancer. If they are a solicitor, they can also provide legal advice. Their role is to prepare the documents to ensure that transfer of ownership of the property has met the legal requirements in your state or territory.

ValuerKnowing the value of a property is a vital factor in a loan application, so a valuer can play a huge role in the home-buying process. A lender will often engage an impartial valuer to ensure that the buyer and the lender will know what loan amount may be warranted. The value is based on the property and location, as well as the current market.

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Refinancing traps you need to avoid

Refinancing traps you need to avoid

Whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.

Honeymoon rates are just thatDon’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount.

Don’t be fooled by the interest rateFinding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments.

Be aware of the feesOne of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better. Contact us!

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Exit costs when refinancing

Exit costs when refinancing

Refinancing either a home or business can be a great way to save money if you believe you are paying too much for your loan, but there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved.

Here are the different exit costs to consider:

Establishment feeAlso known as ‘application’, ‘up-front’ or ‘set-up’ fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. They are payable on most new loans, and the alternative to not paying this particular fee is being charged higher ongoing fees for the life of the loan.

Mortgage discharge feeCovering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a ‘settlement’ or ‘termination’ fee, its purpose is to compensate your lender for the revenue it may lose due to the contract break.

Exit feeAlthough loans taken out after 1 July 2011 are not subject to deferred establishment, or exit, fees, those taken out prior may still be. Also known as ‘early termination’ or ‘early discharge’ fees, they can sometimes be paid by your new lender but are normally applied to an early contract exit.

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Case study: How to avoid settlement penalties

Case study: How to avoid settlement penalties

Connie Wilson was well on her way to becoming a first-home owner when issues cropped up prior to settlement that threatened to cost him her deposit.

Having found the house she wanted to buy and exchanged contracts for sale, Connie found herself considering a costly settlement extension due to unexpected problems with her deposit.

While she had thought that having a deposit sitting on her account would make the process simple, Connie had not realised that she needed to have the funds in her account for a minimum of three months before a lender would consider them genuine savings.

Her deposit, a gift from her parents, was due to reach the three-month milestone only nine days before settlement. Certain that she would need to apply for an extension, Connie spoke to an accredited finance broker to see how she should go about it.“She had wanted to request a two-week extension on settlement, but I told him not to get the extension,” broker says, “it would have involved substantial penalty interest”.

Rather than having Connie foot a $400 per day bill for an extension, the broker jumped into organising a loan, using the strong relationships and knowledge gained over a decade in the industry to hurry the processes along.“What I did was look at the different panels and the different policies, I called the BDMs and sent detailed scenarios to three lenders so that there were a few options in case one didn’t work out,” the broker explains.

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How to negotiate with your property price

How to negotiate with your property price

Negotiating the best property price isn't a matter of swindling a seller. It’s about doing your homework, knowing what you want, knowing the market and making sensible offers.

When you are buying property, getting the best price can mean the difference between being able to afford it and having to settle for second best. And, of course, a purchaser is often negotiating with a seasoned professional, so any time spent brushing up on negotiating skills is well spent.

But we’re getting ahead of ourselves. For a first-class property price negotiation, the homework starts well before you even let the agent know you are interested.

The first thing to do is get a good understanding of your requirements and circumstances. Aside from the location and type of house you are looking for, this understanding involves finance, of course. 

Aside from meaning that when you do eventually make an offer it will be taken seriously by the seller or their agent, having finance sorted out means that you can be sure of what your stamp duty and associated costs are, and exactly what price range you can consider.

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Explainer: fixed-rate loans

Explainer: fixed-rate loans

When purchasing a property, borrowers can decide between fixed-interest loans that maintain the same interest rate over a specific period of time, or variable-rate loans that charge interest according to market rate fluctuations.

Fixed-rate loans usually come with a few provisos: borrowers may be restricted to maximum payments during the fixed term and can face hefty break fees for paying off the loan early.

 With interest rates at an all-time low, taking the option of locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive. However, it pays to know the ins and outs of fixed-rate loans before committing to one.

However, locking in the interest rate on your home loan can offer stability.

“For those conscious of a budget and who want to take a medium-to-long term position on a fixed rate, they can protect themselves from the volatility of potential rate movement,” the finance broker says.

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Can your profession save you on your home loan?

Can your profession save you on your home loan?

When it comes to saving on your mortgage, some of you may not have to look further than your job. If yours is a profession that classifies you as a ‘low risk’ borrower in the eyes of lenders, then you may be entitled to special discounts.

Doctors take the cakeLenders have their own target lists of professions, but doctors are the big winners. “They'll get waived LMI, lower interest rates and, in many cases, banks will even go outside of their normal policy to get their loans approved,” says the finance broker. “However, not all medical professionals, such as psychiatrists, chiropractors, vets and pharmacists, are accepted by all lenders so it’s always advisable to confirm.”

The lucky onesAccountants, lawyers and teachers are commonly eligible for home loan discounts, or particular loan types without fees, based on their professions. “The benefits differ depending on specific professions,” finance broker explains. “It depends on what industry the lenders decide to target as it’s a constantly changing situation, so what’s here today may not be around tomorrow.”

How the perks work

Simply being in a certain profession won’t automatically save you on your home loan. To qualify you must apply with a lender that offers your profession a special discount and meet that lender’s criteria. You’ll often need to provide evidence of membership of a certain industry.

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Guaranteeing your child’s loan

Guaranteeing your child’s loan

Rising house prices are making it increasingly difficult to enter the market. Parents who guarantee their children’s loans can help, but it is important to understand how this can impact the parents’ retirement or investment plans.

Being a guarantor generally means using the equity in your own property as security for your child’s home loan. It can help a first-home buyer to secure finance for a property they can afford but may not have a large enough deposit for, and to avoid the added cost of lenders mortgage insurance.

The risks You may want to help your child but it’s important you don’t go into the transaction blindly. The main risk of guaranteeing the loan is that, depending on the structure of the guarantee, you could be liable should your child default on the payments, either by taking over the repayment schedule or handing over a full repayment. If you can’t make the payments, the lender may sell the home used as security. If this is still not enough, the lender may also require you to sell assets to meet outstanding debt.

Another major risk is a bad credit rating if default occurs. Plus, if you need to borrow money for another purpose, your property cannot be used. If you want to buy an investment property, you can’t use the equity in your home because it’s already tied up in the child’s loan.

Minimising the riskThere are ways to minimise the risks. The most common is using a monetary gift or private loan. It involves borrowing money against your property in your name, and then gifting it to your child. Another way to avoid the risk is to buy the property jointly with your child. This means your name is on the title and you have a certain percentage entitlement. When it comes to guaranteeing a loan, it’s always sensible to speak to a professional. You should also consider asking a legal professional to draw up a formal loan document outlining all conditions of the loan, interest rate and expected repayments.

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Explainer: interest-only loans

Explainer: interest-only loans

Borrowing to buy a property and repaying only the interest for a set period can be a great choice for some, beause interest-only loans can offer the right candidate financial flexibility while they invest. There are, however, some very important risks to take into consideration.

With interest rates at historical lows, interest-only loans may sound more appealing than ever because they offer the opportunity to enter the property market with lower repayments. In saying that, care must be taken, because interest-only loan repayments do not pay down the actual purchase price of the property or reflect a realistic repayment on a standard mortgage.

 “If you’re only repaying the interest on a loan, you’re not building up the equity on your home during that period.”

For an interest-only loan to be part of an effective property investment plan, borrowers must be comfortable that a property’s value will increase substantially. If the value doesn’t increase by more than the interest paid, they may end up losing out on the equity front.

Eventually, interest rates will rise again as the market ebbs and flows and, once a loan reverts to principal-and-interest repayments, borrowers who are unprepared may find themselves in a financial struggle.

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How a guarantor can help you secure finance

How a guarantor can help you secure finance

When you’re desperately trying to save up a deposit for a home and just see the prices of property climbing and climbing, it’s difficult to remain patient. But there is another way: a guarantor can help.

If you don’t have a substantial deposit for a home loan, there are still a number of ways to obtain credit. These are known as family pledges and there are two types available to borrowers: service guarantees and security guarantees.

"Service guarantees are less common that security guarantees" explains finance broker. They involve a family member guaranteeing all of the repayments on a loan, as well as being named on the property title.

A drawback of this approach is that it usually means first home buyers are not entitled to any government grants. A more popular option is a security guarantee. Borrowers who have a limited deposit often use this approach. In this situation, a relative or friend (usually a borrower’s parent or parents) is prepared to use the equity in his or her own home to guarantee the deposit of the borrower.

For example, for a total loan amount of $600,000, in a security guarantor situation the borrower/s would take on the debt of 80 per cent of the value of their loan, which would be $480,000, in their own name/s.

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