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Buying a property with friends

Buying a property with friends

There are many considerations when buying property jointly, so speak to an expert early to make sure you’re doing it the right way.

If you’re looking for a creative way to overcome being locked out of the property market by rising prices, buying a house with a group of friends may be a solution. It can also be a minefield though, so here’s how to avoid a blast.While the excitement of banding together in such a life-changing moment can put everyone on a bit of a high, you need to plan for situations in which things might go wrong.

It’s essential you have all been completely upfront from the start about what you want to achieve by purchasing property together, as well as your personal expectations about timelines for purchasing the property, paying it off and selling it. And all of this must be documented in a co-ownership agreement.

Your mortgage finance broker can refer you to a solicitor of conveyancer with experience in working on co-ownership agreements, who can advise and create yours and make sure it is suitable, providing the necessary legal protection for everyone involved.The big question will be what structure your ownership takes. There are two options: joint tenants and tenants in common. Joint tenancy is the most common ownership structure in Australia, as it is how most family homes would be owned. However, because friends are less likely to share assets and long-term debts than a couple, and less likely to will their assets to each other, the ‘tenants in common’ model would usually be more suitable for this situation.

Under this model, each person owns a specified share of the property’s value. These shares may be equal, but need not be. So, if you are willing to contribute $500,000 to the price of a property, but your two friends are not quite at that stage and only comfortable contributing $250,000 each, you could own a 50% stake while they each own a 25% stake. Keep in mind, each stake is in the property’s value, not control of the property. Legally, under this model, each owner has the right to full access to the entire property.The co-ownership agreement created in collaboration with your conveyancer should set out how the costs of maintenance and insurances are divided, as well as how sale proceeds will be divided.

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Six ways to fund a renovation

Six ways to fund a renovation

Any renovation project, large or small, can be all-consuming in terms of your energy, time and money. Here are six loan types that can help you.

Considering transforming your home but lack the funds to support your major makeover? Never fear, we’ve rounded up a few different home renovation loans to help you turn your dream into a reality. Whether you want to make a few finishing touches to your home with the help of a paint job or completely turn your home into something magical, there’s an option to suit your needs.

1. Home equity loanThis is probably the most common way people borrow money when they want to renovate. It involves borrowing against the current value of your home, before any value-adding renovations. You won’t be able to borrow the full value of your home but, without mortgage insurance, you can usually borrow up to 80 per cent of its value if you own it outright. One potential problem is that the cost of your renovations may actually be higher than the equity you have available.

2. Construction loanThis is similar to a home equity loan, except the lender will take into account the final value of your home after the renovation. You won’t be given the full loan amount upfront, but in staggered amounts over a period of time.

3. Line of creditThis may be ideal for ongoing or long-term renovations. When you apply, you can establish a revolving credit line that you can access whenever you want up to your approved limit. You only pay interest on the funds you use and, as you pay off your balance, you can re-borrow the unused funds without reapplying. However, care must be taken not to get in over your head in terms of serviceability – make sure you can make repayments on the line of credit that will reduce the principle.

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5 things first-home buyers need to know

5 things first-home buyers need to know

Before you decide to purchase your first property there are a number of things to consider, including your current personal circumstances and financial status.

1. Think about why you want to buy a home.

Do you want to live in it or will it be an investment property? This can help determine the kind of loan you apply for and home you buy, depending on your short and long-term plans.

2. Research potential properties and loans.

Knowing the market is crucial, so do some research on the areas you are targeting, check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.

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How to buy a home when you’re self-employed

How to buy a home when you’re self-employed

Many lenders offer loans for self-employed borrowers who can’t hand over payslips and employment records. This means that, rather than the usual documentation, you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.

Self-employed borrowers come up against the challenge of not being able to simply present payslips and tax returns to back up their loan applications. But this need not stop you buying your dream home.

Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan. Getting this right is more than presenting a lender with a few quick sums on the back of a napkin; it can take a solid six to 12 months of preparation.

Here are some quick tips:

reduce debt: pay down credit cards and personal loans, and be sure to lower the credit limits as they are paid down, as lenders assess the total credit available to you as a potential debt level, not just the amount you owe;cancel credit cards that you don’t need (this will affect credit scoring);speak to a credit adviser about how the structure of your business and your taxable income will impact your ability to borrow;do your taxes when you should, and always pay your tax assessments on time;save: saving a deposit is obviously important, and showing your ability to live within your means while saving is too. This is key to serviceability – you want to show at least a six-month history of high income and low expenses; andask your Mortgage Approved Credit Adviser, rather than a bank. Credit advisers have access to specialist lenders that assess applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors, while bank lenders do not.

Loans to the self-employed do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking when lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements.

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Don't have savings? We could help you buy your first home!

Don't have savings? We could help you buy your first home!

Young couple John and Kim were keen to start paying off their own home rather than paying rent, but had no savings. Here’s how they bought their first property.

John and Kim Wright were wondering why they were paying off their landlord’s mortgage instead of their own, but they didn’t have the savings or financial history to convince a lender to give them a mortgage.

After being declined by two lenders, one a big bank and the other a smaller lender that they thought they would have luck with, they contacted their local mortgage finance broker.

“During my initial discussions with John on the telephone, I asked him several questions to help me put the pieces of his jigsaw puzzle together,” says the finance broker. “And, on paper, it certainly didn’t look like a deal.”

As well as the lack of savings, the couple had a couple of other problems standing between them and a strong application: John had recently changed his employment and he had a small, paid default on his credit file.

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When time is of the essence, call an expert

When time is of the essence, call an expert

Sometimes, getting a deal over the line in time requires a conversation with an industry expert.

Late last year, Adam Smith was seeking finance to purchase a share in an investment property with two other investors, and simultaneously trying to secure finance for an investment property he was purchasing on behalf of his wife Louie.

The financial institution he was dealing with was frustrating him and jeopardising his plans; with settlement fast approaching, the valuation was taking too long to be finalised and Martin didn't feel that he was being informed of progress.

On Christmas Eve, Adam contacted his mortgage broker looking for help, hoping to find a solution by the time settlement came around on 10 November.

He needed a fast solution.

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6 Important points to think about as a first home buyer

6 Important points to think about as a first home buyer

 

Before deciding to purchase your first property there are a quite a few points to consider, most importantly including your current personal circumstances and financial status.

1 Think about the reason you want to buy a home

Will you live in the property or rent it out? This can help determine the kind of loan you apply for and home you and it will also impact on your borrowing capacity. If it is for investment you can include the rental income you will receive in your borrowing capacity but you will also need to include what you are currently paying in rent.

2 Research potential properties and loans

It is important to not just jump straight in, you shoud do some research. Knowing the market is crucial, do some research on the suburbs you are targeting, check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.

CBM Mortgages have access to a wide range of lenders and many will allow you to purchase with less then a 20% deposit. If you are providing less then a 20% deposit most lenders will want to see that you have held the equivalent of 5% of the purchase price for more than 3 months in your name. This would normally be in a bank account but could also be in shares. It is important you can demonstrate this so check with CBM Mortgages if you are unsure of the savings process

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How many types of home loans are there?

How many types of home loans are there?

Hundreds. The key is finding the one that is the right one for you. If you don’t know a lot about the mortgage market you might decide to go with a basic home loan but the loan type and the rate will vary depending on the loan amount and contribution and this is why it's best to speak to a qualified mortgage broker. Here we look at just some of the more common home loan & mortgage options on offer today:

• Basic home loan• Honeymoon loan• Standard variable rate loan• Redraw facility• 100% loan Basic home loan

A basic home loan offers a low but variable interest rate and few or no regular fees. However, there is also limited flexibility. e.g. you may not be able to pay off extra if you get a windfall, or vary your repayments. These loans are normally taken for loans lower than $250,000

A honeymoon rate offers a very low interest rate for an introductory period – generally 12 months. Once the “honeymoon” is over, the interest rate reverts to the higher variable rate . You need to consider the cost of the loan over more than just the honeymoon period, and if any fees are incurred if you refinance after the honeymoon period.You really need to know the revert options on this type of loan.

A standard variable rate loan is a loan product that generally allows you to choose many “bells and whistles”. e.g. a redraw facility, an all-in-one account facility, linked accounts and credit cards etc. Consider the features you need carefully with your Mortgage Broker. These loans under the banks package are probably the most common type of offering as the banks try to win all of your business from credit cards to insurances.

A redraw facility lets you pay off more of your home loan but still allows access to those extra funds if you need to. There wcould well be aminimumredraw amount, it is important to know the amount if keeping all surplus cash in your loan is important to you. There will also typically be a fee for every time you redraw.

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What should I ask my Mortgage Broker?

What should I ask my Mortgage Broker?
Start with 'Are you a member of the MFAA or FBAA?'

A good accredited mortgage broker can help guide you through the mortgage market to find the home loan appropriate to your situation. But, before you start working with a residential mortgage broker, there are a few questions you should ask.

Are you a member of the MFAA?

The Mortgage & Finance Association of Australia (MFAA) is the peak industry body in Australia and the one the majority of mortgage brokers are accredited with, representing more than 12,500 mortgage & finance professionals across the country. To be accredited by MFAA, credit advisers must satisfy rigorous criteria on education, experience and ethics. So if you want to work with an accredited residential mortgage broker in Sydney – someone you can trust – the first question you should ask is, “Are you a member of the MFAA?”.

Mortgage Brokers: education & experience

To help you negotiate the complex mortgage market, you need someone with knowledge and experience. So ask your mortgage broker about their credentials.

What fee is your mortgage broker charging?

Since most mortgage brokers receive a commission from the lender, they generally offer their service free of charge to the borrower. But don't assume this. Ask your mortgage broker if they charge a fee, and if so, how much.

What commission is your mortgage broker being paid?

Don't be afraid to ask a credit adviser what they are being paid for their home loan recommendations. The MFAA's Code of Practice requires its credit advisers to reveal the commissions they are being paid by a lender on a particular home loan product or any other products they may offer. To borrow with confidence, only deal with an MFAA or FBAA accredited mortgage broker. Talk to CBM Mortgages today. Find out how we can help you buy that first or next property.

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How Parents can help you buy your first home?

How Parents can help you buy your first home?

 

Be nice to your parents.

If you can't save a deposit to get a mortgage or home loan by yourself, maybe your parents, a relative or friend can help with a gift, loan, or home loan guarantee. This could also save you money in lenders mortgage insurance premiums.

Financial help with home loans – parental gifts

Obviously, the best kind of loan is one you don't have to pay back. If someone is willing to give you money to help you buy a home – and doesn't expect it to be repaid – you're very fortunate. But make sure you get it documented. Otherwise your lender will consider it a loan that has to be repaid and therefore you will have a liability to repay that loan back as well and this will impact on your borrowing capacity.

Financial help with home loans – parental loans

Your parents might be able to help you with a deposit for a home loan – but they probably want it repaid. Bad luck. Still, this could be a big help, particularly if they are offering the money at a favourable interest rate. Again, you should have the parental loan documented because your lender will want to know the details in order to calaculate your borrowing capacity.

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When should I contact a mortgage broker?

When should I contact a mortgage broker?

 

 

Are you saving for a home? If you haven’t met with an accredited mortgage broker yet, it may cost you. Here’s why.

 

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Fixed v's Variable

Fixed v's Variable

This is a question that is asked by friends and clients on a regular basis. Before choosing one or the other, first of all it is important to understand the difference and the mechanics of both of them and what impact they can mean to you and your mortgage. Another important factor is the RBA cash rate and the banks standard variable rate.

The Reserve Bank of Australia and the bank standard variable rate

It is important to know with all rates not just variable, that although the RBA may reduce rates (most commonly in increments of 0.25%) the lender you are with may not pass on that full cut. This is a topic that has been in the media quite a lot in recent times as none of the major lenders have passed on the full RBA cut in the December decrease and this has been quite a common theme in the majority of the other three cash rate decreases in 2012 (The cash rate dropped a total of 1.25% in 2012). The banks normally make their decision within 2-3 days of the RBA decision and pass on their decision a couple of weeks later. At present the only major bank that reviews their rates independently is the ANZ, which announce their reviews on a monthly basis. Media reports state that the other major banks will follow suit in this approach. 

Currently the cash rate is at it lowest in over 3 years with  NAB forecasting three more cuts in 2013 NAB Economist tipping three more cuts in 2013. The last increase was in 2009 which had kept the cash rate at 3% for 3 months until its October increase.

At present the gap between the RBA cash rate and the banks standard variable rate is the greatest it has been in 19 years with the banks blaming the cost of off shore funding for this. 

Variable rate mortgage

A variable rate mortgage will move up and down with the Reserve Bank of Australia (RBA) decision on their cash rate and therefore is also commonly known as a floating rate. The variable rate is the most common type of mortgage in Australia and the one most potential borrowers look at when searching for finance. The variable rate loan normally has many features linked to it such as an offset account, redraw and the ability to pay off additional funds with no extra charge. You normally have the ability to pay out your mortgage without a large fee. The Australian government has recently imposed new laws so lenders can not charge high exit fees, although these have stopped the lenders still impose a fee of approximately $250-$350 as a "legal" or "administration" fee.

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Purchasing property in Australia on a 457 visa

Purchasing property in Australia on a 457 visa

Most people on a 457 visa have a misconception that they are unable to purchase property in Australia while they are on a temporary visa but this is just not the case. A 457 visa holder or other temporary visa holders can easily purchase property although they do need to seek Foreign Investment Review Board (FIRB) approval. The FIRB policies have changed a few times over the past five years but at present people can apply for approval as long as the property is a residential property and they intend to live in the property. If the purchase is for investment then it needs to be a brand new property. The approval is on the property and not the applicant, so an approval is required for each property you are looking at purchasing.

457 Visa Mortgages and Bank policies

Prior to setting up CBM  Mortgages I worked for one of Australia's leading banks and created their home loan policies for temporary visa holders, specifically their 457 visa home loan policy which many brokers use today. My job was to make it easier for someone migrating to Australia purchase property. Previously the banks looked at potential mortgage applicants as citizens or non citizens and unfortunately temporary visa holders specifically on a 457 visa were unable to access the same policies as Australians and were treated the same as someone living overseas. After producing a report it was demonstrated that selected visa types are for highly skilled individuals that have moved to Australia to work and many to start a new life. It was shown that although these 457 visa holders do not hold citizenship, their occupations are on the Australian department of immigrations skilled occupation list (SOL) and they generally command a high salary and are quite a safe bet when purchasing property. If they were to lose their job then they it should not be too hard for them to find new employment due to their occupation. Also due to them not receiving any First home Owners benefits (FHOG) unless they purchase with an Australian permanent resident or citizen, the chances of them leaving and walking away from a property they have had to make a considerable contribution is slim. The policy for these applicants was introduced and 457 visa mortgage applicants could go as high as a 97% lending to value ratio (LVR) on selected properties if approved by the banks credit department. This was lowered to a 90% LVR at the start of the GFC when the bank pulled back many of it's credit policies. 

So presently applicants can purchase a property with a 10% deposit plus money for their costs (stamp duty and lenders mortgage insurance premium). This is still a great opportunity for temporary visa holders as nearly all banks require at least a 20% deposit plus costs. Applicants would still need to be approved by the banks credit department and they normally like to see a minimum of 6 months with their current employer and a minimum of 12 months left on their visa. Each application is assessed on a case by case basis though and looked at on it's merits.

Current 457 visa approval levels and forecasts

At present the Department of immigration are approving just over 30,000 new 457 visa applications per year with the department of immigration forecasting this to rise to 52,000 in 2016. After calculating the 457 visa holders returning home this leaves a net migration of  approximately 22,000 for 2012 with forecasts up to approximately 26,000 in 2016. The 457 visa is normally between 3 months and 4 years with the majority being 4 years. If the applicant still qualifies then these ncould be extended for a further 4 years. Unconfirmed sources estimate there to be as many as 100,000 457 visa holders currently in Australia. This means there are many people in Australia currently on a 457 visa and potentially looking to extend their stay in Australia and purchase property in Australia. 

                                                                                                                               

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