Is a family guarantee right for you?

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Entering the property market is no easy feat for a first homebuyer, but even parents who aren’t prepared to hand over cash for a deposit may help by being a guarantor on a loan. Before taking the plunge however, it’s crucial to be aware of the implications involved. Here are three questions to ask yourself to see if a family guarantee is right for you.

  1. Am I financially fit to be a guarantor?

The very first thing you should be certain of is whether or not you are in a financially capable position to pay off the loan if the borrower finds that they can no longer do so. There can be many disruptions to an income, such as loss of employment or a serious accident, and some types of guarantor loans hold the guarantor legally accountable to ensure the mortgage is paid off.

“You need to be in a strong financial position and have enough equity in your property to be a guarantor,” says a finance broker, “Some banks even want to make sure that the guarantor can service the full debt as well, so it’s always advisable to get independent legal or financial advice if you’re considering it.”

  1. Do the benefits outweigh the risks?

It’s no secret that it can take a long time to save for a deposit and by becoming a guarantor, you offer the borrower the chance to enter the property market sooner.

“Lenders may treat the loan like an 80 per cent lend, so you avoid the costly lender’s mortgage insurance,” the broker advises, “You also don’t have to save up for a full deposit for the purchase, or sometimes any deposit at all.”

However, any time you borrow money or a bank places a mortgage over your property, there are definitely things that need to be taken into account, the broker explains. “While in some instances I would recommend it, it’s definitely not a first option as there are certain factors that can put you or your property at risk. Your ability to borrow will also be reduced after using a guarantor.”

  1. Are there other ways I can help without being a guarantor?

If contributing to a deposit is an option, it allows you a little help without needing to put yourself or your property at risk, but there are some extra hoops to jump through if a deposit includes gifted funds.

“With gifted funds, if [the deposit is] less than 20 per cent of the property’s purchase price, then the banks will most likely want to see five per cent of genuine savings,” the broker explains, “Having said that, there are a few lenders that will allow you to use rent as genuine savings. So, if you’ve been renting for a while, it shows that you have the propensity to make repayments and then the reduced (less than 20 per cent) deposit may be used in that regard.”

Mortgage and Finance Association of Australia (MFAA) accredited finance brokers can provide access to tailored loan products and expert knowledge, and meet the highest educational and ethical standards. Get in touch today to see how we can help!

How to keep your loan application on track

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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.

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.

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.

“I commonly see the same type of document sent back from the lenders, often due to non-disclosure,” explains Anthony Wickremasinghe, Business Development Manager at lender Liberty Financial.

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

In order for a lender to assess your capacity to service loan repayments, every financial detail must be taken into account.

Lenders want to see proof that you are capable of managing the responsibility of the loan, through steady employment, a good credit history and a debt-free approach to your financials.

“We like to help customers that are in trouble. But if they have bad habits, we can’t really help them before we know that they can commit to us in the future,” Wickremasinghe says.

By having all of your documents organised and a saving and repayment plan documented, as well as evidence that you can commit to the plan, you will increase your chances of receiving the loan you are after, even if your credit history is not perfect.

“We do look at customers who have had hardship issues,” explains Wickremasinghe.

“If we can see that they are trying to help themselves, and going forward we are putting them into a better situation or a better product, then we will proceed with that.”

In many cases, home loan applications require professional guidance and help, we have the expertise to match a loan to a borrower and help you to ensure that your documentation is in order.

Why you need to know your interest rate

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Interest rates are a big factor in each repayment and the total cost over the life of a loan, so staying on top of your current rate, as well as the interest trends across the market, is essential.

By staying on top of interest rates, borrowers can make informed decisions about choosing a first-time home loan or getting a better rate by refinancing.

Interest rate percentages are based on a number of factors- the Reserve Bank, the cost of money on overseas markets, and the general state of the economy. Interest rates don’t appear to move by much when looked at as a simple number, sometimes only a fraction of a percent, but each basis point makes a significant difference to the total cost of a loan, and makes a big difference when you’re working to pay down your mortgage.

When you first lock in a home loan, you will choose a fixed or variable interest rate. A fixed rate does not change over a set period of time, and your payments will be predictable each pay cycle. On the other hand, a variable rate is attached to the market interest rate and will move up and down with the market.

Interest rate calculators are very useful to help you compare rates across fixed and variable loans, and translate the rates into an impact on monthly repayments, loan length and the total cost of a loan.

The best way to keep on top of those movements is to stay in contact with your finance broker. They will be able to help you shop around to find the best deal for refinancing when the time is right for you.

Get in touch today to speak with one of our team who can help you understand how to secure the best interest rate for your mortgage.

Should you manage your investment property?

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While managing your own investment property can seem like a simple way to keep more of the rent flowing towards the mortgage, there’s a little more to it than making sure the house is standing and collecting the money.

Managing your investment property appears pretty straightforward- you find a tenant, they pay rent, and you keep a close eye on your asset. It’s cheaper, and may suit people with the know-how and available time necessary to sustain a financially viable real estate asset.

If you have a reliable tenant willing to pay market rates and you know how to protect your rights and your tenant’s rights in the event of a mishap, chances are your investment will run smoothly. But there are some very important factors to consider before donning the managerial hat.

Firstly, there’s a lot of legislation in place to protect tenants and landlords. If you don’t have the means to become familiar with the law, running the books on your own might not turn out well.

“Knowledge of the legislation is the most beneficial part of what we do for our clients. That is something that we encounter continuously- breaches and other issues,” explains the finance broker, “The legislation is very grey. A professional property manager will have the experience and knowledge to guide their client as to each case and what the likely and fair outcome should be.”

Do it yourself property managers also need to manage lease agreements, rental payment authority, bond lodgement forms and property inspection reports. In the case that something goes wrong, the correct implementation of these documents could be the difference between a win or loss at the relevant tenancy tribunal.

Property managers also market the premises in order to ensure that you get a good price, and the property may be more appealing simply because renters know they will be dealing with a professional rather than an owner.

“Prospective tenants prefer to deal with an agent. They tend to shy away from self-managed properties because they like to have the middle-man,” the broker says.

While self-managing is right for some, having a professional, trustworthy manager available to handle inquiries, damage or a broken lease can pay off for other owners. It all comes down to whether or not you can commit the time and effort needed to ensure your investment needs are met, as well as the rights of your leasing tenant.

Thinking about financing an investment property purchase? We can help!

Exit costs when refinancing

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Refinancing 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:

Exit fee

Although 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.

Establishment fee

Also 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 fee

Covering 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.

Lender’s mortgage insurance (LMI)

The non-transferrable premium means that if you hold less than 20 per cent equity at the time of your refinance, you may have to pay LMI even if you paid it on the original loan. Extra care is also needed here because, whether or not you hold 20 per cent of the original valuation of the property, you may not if the property’s value has decreased and; while LMI may not have been a consideration at all in the original loan, it may be payable on the refinance.

Stamp duty

If your purpose for making the switch is to increase your loan amount, for example to fund renovations, then stamp duty will apply only to the difference between the original loan amount and the refinanced loan amount. Different rules apply in different states, so it’s worth speaking to your broker to see if this charge applies.

Other government charges

Fees are applied for the registration and deregistration of a mortgage so that all claims on a property can be checked by any future buyers. Varying from state to state, these can potentially add up to $1000 or more.

Break fee

If you were on a fixed rate loan, your lender is likely to charge you a fee for ‘breaking’ out of the loan term. This fee varies depending on the amount owed, the interest rate you were locked into, the current interest rate and the duration of your loan.

Although some of these fees can be negotiated by a broker, the total cost can be substantial. Using a broker will ensure that refinancing helps you achieve your goals while maintaining your capacity to service the debt. Get in touch today to see whether we can help you ensure that pay only the relevant fees for your unique circumstance.

Business Loans – what you need to know

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Applying for a business loan is a completely different process to that of a home loan application. To ensure you don’t lose your way, we’ve set out a clear path for you to follow.

1. Find a specialised broker

Commercial lending is very different to residential, so when searching for a broker, it is important to seek one who is not only accredited, but also experienced in commercial and business finance.

“The first things you should ask a broker is what experience they have with commercial and business loans, and how many lenders they are accredited with in the commercial space,” says the finance broker. “This is to ensure you are presented with a range of options that give you maximum choice.”

2. Gather your paperwork

Unlike residential loans, where much of the paperwork is straightforward, business loans are assessed on a case-by-case basis, which means the documentation that needs to be provided varies depending on the situation.

“Every deal is taken on its own merit, so consumers need to be prepared that lenders will ask for extra information outside of what would normally be expected,” says the finance broker. “In a nutshell however, you’re going to need proof of income and expenses, assets and liabilities, essentially anything that demonstrates that you’re asset rich.”

Other advisable forms of paperwork include tax records, exit strategies and of course, your business profile, so that lenders know what kind of business they are lending to.

3. Do a self check

Loan to value ratios (LVR) on business loans are lower than those in residential. In comparison to the potential 95 per cent you could obtain with LMI on a home loan, you may only get between 50 to 70 per cent for its business counterpart, which means having extra money or equity to put into the deal deems you an ideal applicant.

“Having a good income and asset position is crucial as commercial loan terms are usually a lot less, which would make the monthly repayments a lot higher,” advises the finance broker.

4. Further tips

Work with your broker to negotiate terms and product features that best suit your situation. This will help avoid extra onerous tasks that are sometimes expected with commercial lending.

“Ideally you would want a loan that doesn’t require ongoing reviews and one that has a long loan term,” advises the finance broker. “Some banks may offer a better rate with only a three year loan term for example, but that just means you’ll have to renegotiate your rate and fees once your term ends. This could potentially mean forking out more application and establishment fees, which could add up to an extra $1500 to $2500 expense.”

If you are considering taking out a business loan get in touch today – we can help.

How do I know I’m getting a good deal from my lender?

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With so many products offered by various lenders, it can be quite perplexing trying to figure out whether or not you’ve scored yourself a good deal on your home loan.

While doing your research and comparing what’s out there in the market is one of the most obvious ways to find out whether you’re sitting on a good deal, it can be a time consuming practice and an overwhelming experience for those without specialist knowledge of the mortgage sector.

“It’s good to shop around, and yes you can use comparison websites, but because lenders call like products different names, it can get very difficult comparing apples with apples,” advises the finance broker. “Brokers know the special names and pricing, so it’s worthwhile working with one as not only will it save you time but you’ll also get a well-rounded understanding of the advantages of each product.”

That understanding of each product’s pros and cons is essential, because the best deal isn’t necessarily just the one with the lowest interest rate. It ultimately comes down to finding a loan that suits your plans – whether those plans are to pay the loan off as quickly as possible, to use it to fund renovations or investment down the track, or to pay the lowest total interest and fees over the life of a loan – and to finding a lender that will provide that loan at the level of finance required.

“Imagine you’re wanting to buy your dream home. Now, different lenders will lend varying amounts based upon the same criteria,” says the finance broker. “So that could mean that the lender with the sharpest rate may lend $200,000 less than the one with a slightly higher rate. If you really want that property, you’re going to have to go with the one with the higher rate, which may only make a few thousand dollars difference a year in interest repayments.”

We have specialist knowledge of products from multiple lenders, to ensure you are getting a good deal. Get in touch today if you are looking for advice.

What are the extra costs of buying a home?

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Application & establishment fees, stamp duty + more.

When taking out a mortgage, many people forget to consider the associated fees and expenses. Here are some of the extra costs that you’ll need to consider when you take out a home loan.

Home loan application fees

Most lenders charge a home loan application fee. This can range from loan to loan, and covers:

  • Loan contracts
  • Property title checks
  • Credit checks
  • Attending a settlement

Mortgage fees and costs

Mortgage establishment fees – Lenders generally charge a mortgage establishment fee – a fee for setting up a mortgage.

  • Property valuation – A third party chosen by the lender, is appointed to determine the value of your land and improvements.
  • Mortgage registration – Your Mortgage deed needs to be registered with the government.
  • Mortgage stamp duty – Some State Governments charges stamp duty to register your mortgage.
  • Lenders mortgage insurance – If you don’t have 20% of the purchase price or the value of the property, the lender will require you to pay  for a lenders mortgage insurance policy that covers their risk in the event you default on your repayments.

Property fees and costs

  • Building, Pest and Electrical Inspection fees – It’s wise to have your property inspected for any structural or electrical problems and for pests (e.g. termites).
  • Stamp duty – Governments charge Stamp Duty to transfer the ownership of a property.
  • Registration of transfer fee – The new owner of the property needs to be registered at the Land Titles Office.
  • Legal fees – You generally need to pay a Solicitor of Settlement Agent to handle the transfer of ownership of the property on your behalf
  • Home & contents insurance – Most homeowners insure their home and contents against a range of threats: burglary, fire, storm, etc. Lenders insist that your property is insured while you have a mortgage.
  • Life and income protection insurance – Borrowers should consider protecting their incomes and themselves while they have a mortgage.
  • Utility costs – Connecting electricity, gas and telephone can attract a fee.
  • Council Rates – Your local council charges rates to cover garbage collection and a host of other services.
  • Water Rates – The water corporation charges rates for the supply and upkeep of water to your property.
  • Body corporate fees – If you buy an apartment or Strata Titled property, body corporate fees are charged, and some fees can be significant – particularly if the building is in need of a major work (e.g. concrete cancer, security upgrade, new hot water system, etc) or if there are lifts, pools and other communal facilities.
  • Maintenance costs – Don’t forget to make provision for regular maintenance on your home – even if you decide not to undertake significant renovation.

To learn more about the hidden costs of buying a home, and discuss how we can help you, get in touch today.

Rental yields – what you need to know

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Rental yield – essentially the rate of rental income returned against the costs of an investment property is a great indicator of a property’s investment potential. But you need to keep things in perspective when you factor it into your decision to purchase property.

Calculating rental yield

A good first step in examining rental yield’s impact on the investment potential of a property is to recognise that there are two types of rental yields, gross and net, and they are calculated differently.

In property, gross rental yield is calculated by dividing the annual rental income you receive by the property value, and then multiplying this figure by 100.

For example, if you collect $20,800 rent annually ($400 per week) and your property value is $450,000, it will look like this:

$20,800 (annual rent) / $450,000 (property value) = 0.0462

0.0462 x 100 = 4.622

The gross rental yield is therefore expressed as 4.622%

Presumably, the higher the rental yield percentage, the better, as it suggests a more efficient return on your investment – more bang for your buck.

Knowing a property’s gross rental yield is a quick way to make a rough comparison of how its rental returns fare with others in an area, but it does not give a full picture of the investment potential a property offers.

But the gross rental yield can be misleading.

Net rental yield, on the other hand, offers a more detailed picture of a property’s rental return. To calculate net rental yield, you also factor in the costs and expenses you incur in addition to your property’s value.

The list of costs and expenses is extensive and can include stamp duty, legal costs, building inspections and recurring expenses such as maintenance and repair work, council rates and loan interest repayments.

If you deduct $5,000 for annual costs and expenses from the annual rental income in the gross rental yield scenario in the example above, the net rental yield is 3.5%.

Of course, the credibility of net rental yield is dependent on the accuracy of assumptions you make about the cost of repairs, the property’s market value and the property’s occupancy rate.

A building inspection might reveal dormant issues that will drastically increase future repairs and maintenance expenses. Rental yield might be high for those properties occupied in the neighbourhood, but that doesn’t mean the property you have in mind will be occupied all year-round – vacancies in one street can vary from the next, too.

Rental yield is only one factor to consider

Calculating rental yield should only be part of your assessment of a property’s investment potential. To do due-diligence and ensure you’re making the right investment, it’s also important to consider the resale value, investigate market reports, demographics, sales and rentals history in an area, planning and infrastructure, and the story of the building.

Looking to buy an investment property? Get in touch and we can help you further evaluate the benefits and the issues to consider before making your purchase.

How to negotiate the best property price

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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, says buyers’ agent Shelley Horton, 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.

“One of the first things I would be wanting to find out is whether a purchaser will be borrowing to finance the property, and how much they are looking to borrow,” Horton explains. “If someone is relying on finance as part of the property purchase process, I would always recommend they go and get preapproval, because if you don’t have preapproval, it doesn’t really put you in a strong position against the rest of your competition.”

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.

“We can start to work out what an offer range might be, and then it’s just a matter of ascertaining the market,” Horton says.

“This means doing lots and lots of research – seeing the prices other similar properties are listed on the market, checking recent sell prices for other properties that fit the criteria, comparing as much as we can like for like, so then you know that you’re not paying too much.”

Horton initially looks at online resources such as realestate.com.au or Domain. She also uses RP Data reports, but notes that the general public doesn’t usually have access to these (agents, valuers and finance broker usually do).

“The reports give us a little more insight into properties that have sold, and background on the circumstances and situations leading up to a property coming on the market, how long they’ve been on the market and whether they have switched agents,” she says.

Above all, the best thing a buyer can do is get out and look at properties, and speak to the agents to build contacts.

“I inspect properties and go to auctions just to keep in touch with the area, to see what the market is doing,” Horton says. “If you go to an auction and there was a lot of hype around the property, but then you find that there was really only one person interested in bidding, it tells a different story.”

Once you have your finance sorted and you’ve found that special property, get the building and pest inspections done as soon as you can so that if you do make an offer, you are prepared to move quickly. This can give you the edge on your competitors.

“If you have your homework done – your due diligence reports, your finance – you know exactly the position you’re in and you’re ready to go, and letting the agent and vendor know that is actually a good thing,” says Horton. “An agent wants to look for all those signs to see who is the most serous buyer. So being able to make an offer, possibly with no cooling off, will put you ahead of anyone else, because the agent knows that you’re going to start talking about dollars and, once you agree, it’s a done deal.”

Finally, it’s time to talk dollars, and you are well armed by the time you reach this point. Most agents will make buying guides available at inspections, so you will have a good idea of the vendor’s expectations; you will have a certain budget in mind because your finance is locked in; and you will have a good idea of the value of the property from all the preparation you have done (if you are still unsure here, you can have a professional run a valuation or engage a buyers’ agent).

So what should you offer?

“I tend to not start too low because the agent won’t take you seriously,” Horton says. “You have to get that balance right. You might want to start five per cent below a realistic opinion of the value of the property, and go from there. It also depends on your budget. Certainly start below your maximum, and work up to that. Every dollar you get the property under your budget is a bonus for you.”

One exception to this is when a property has been on the market for a long time and there is not much interest in it. “That might be the case where you can get something at a heavily discounted price because the property is stale,” Horton says. The key to knowing whether this is the case, of course, is all that thorough research you’ve done.

Ready to make the deal? Get in touch today to see how we can help you get your finance sorted.