In many cases, the amount of money that a borrower needs to spend each month on their mortgage is not the primary problem. Instead, it might be the size of the deposit that they would need to save up in order to avoid higher interest rates and the cost of lender’s insurance. The value of a home rises faster than the size of the average income. This means that it can take several years to save up a 20% deposit. By the time the deposit is saved up, many of the properties that were once affordable are now too expensive to apply for.
Thankfully, there is another option that does not require the borrower to pay lender’s insurance. This is known as a family guarantee. By relying on the support of your family, avoiding lenders insurance is possible without waiting years. As a matter of fact, a family guarantee makes it possible for you to invest in real estate as well.
How it Works
A family guarantee allows a member of you family to use the equity in their own home, or a property that they own, in order to provide security. In this way, you can borrow as much as 100% of the value of the home without having to worry about the extra expenses that you would normally be required to face under these circumstances.
For the process to work, a family member must agree to sign up as a guarantor for part of the value of the loan. In most cases this will be a parent, although a brother, sister, or grandparent certainly isn’t out of the question. They will then decide how much of the loan they will be willing to secure. They can use any amount other than 100%, although the most popular figure is 20%, since this often allows the borrower to avoid lenders insurance.
At this point, the borrower decides which kind of home loan they are interested in signing up for. They then fill out all of the necessary paperwork for the lender to evaluate the borrower’s financial situation. The guarantor will also be required to provide similar information, as well as proof that they are independent of the primary borrower legally and financially.
Benefits For the Primary Borrower
As the primary borrower, you will be able to buy a home sooner than you would otherwise be able to. You can avoid the years that it would normally take to save up for a deposit. You will be able to borrower a much larger amount than would otherwise be possible, possibly as much as the value of the entire home in addition to all the associated expenses. You can either reduce or eliminate the cost of lender’s insurance.
Advantages for the Family Member
As a family member to the primary borrower, the most obvious advantage is that you will be able to help them buy the home that they really want. It is also much safer for you then if you were to simply cosign the loan. Rather than being held responsible for the value of the entire loan, you are only held responsible for the portion that you have secured. You can also be released from the guarantee once the secured amount has been paid off by the primary borrower, or once the equity of the home has grown enough to cover this value.
Benefits to the Bank
You might not care why the bank benefits, but it can be helpful to understand why the family guarantee works in the first place. Banks purchase lenders to protect themselves from the threat of foreclosure. If the borrower’s situation changes and they can’t pay for the loan, the bank is forced to try to sell the home on their own in order to avoid losses. Of course, banks simply are not real estate agents, and can’t sell a home at the full value. A 20% deposit is usually enough to assure the bank that they will be able to avoid any losses if they need to sell the home on their own.
If the deposit isn’t large enough, the bank goes to a lender’s insurance company in order to protect themselves from these losses. Of course, paying for insurance would be a loss from the bank’s perspective, so they pass these costs onto the borrower.
When a family member puts up the equity in their own home against the value of the new home, the bank no longer has any reason to fear losses from foreclosure. The guarantor will be required to cover 20% of the value of the home, and the bank can rest assured that it will most likely break even or turn a profit.
Find out more about family guarantees.
Becoming a guarantor for a friend or relative can be a very risky business. Consider the case of Nadia and John Abdelkodous. This couple from Sydney decided to help their son purchase a home in the Prestons in 2001, so they borrowed $494,000 from Adelaide Bank and used their home as collateral.
In 2005, their son defaulted on the payments and the bank issued a default order. The Abdelkodous couple began making the repayments, but were unable to continue in 2009. The bank acquired a default judgment against the couple, and they claimed that their son had forged their signatures when he obtained the loan.
A lot of cases similar to the case of the Abdelkodous family have been in court lately. All of these cases involve guarantees, promises made by a third party to repay a loan if the borrower defaults on it. Guarantees are usually made when the lender does not feel certain that the borrower has the capacity to repay the loan. If for any reason the borrower does not make all of the required payments, the guarantor will be held personally responsible for the debt, as well as any outstanding interest, fees, or charges.
Many people who agree to become a guarantor don’t understand the risks of doing so. In most cases, the guarantor’s home is all they have to offer as collateral, and they may also have limited income. If the borrower defaults on the loan and the lender asks for payment from the guarantor, he or she will often not be able to afford it. In addition, fraud is also involved in many cases of this sort.
Some professionals in the mortgage law industry feel that the process of becoming a guarantor for anyone should be made illegal. Most guarantors end up in trouble as a result of the decision, especially when a business loan is involved. It is possible to create a business plan that does not involve a guarantor, and this is a much better course of action.
In recent cases, judges have been likely to cancel a loan if they feel that the guarantor did not understand what he or she was getting into. In these cases, it is decided that the lender should not have accepted the guarantee. Sometimes lenders will allow a guarantor to sign based solely on the value of his or her assets, which simply isn’t enough. However, though some judges are sympathetic to the plight of an unsuspecting guarantor, it is more common for the court to hold the guarantor responsible for the loan. In fact, in cases where it is discovered that the guarantor was involved in some sort of fraud to help the borrower, the courts almost always force the guarantor to take responsibility for the debt.
Guarantors often say that they only agreed to sign a guarantee because they felt pressured into doing so. However, there are other options that should always be considered before agreeing to act as a guarantor. The individual could instead agree to loan the borrower money for a deposit interest-free. You could also suggest that the borrower save money for a while before attempting to acquire the loan.
Another example of a guarantee gone wrong comes from the case of Fast Fix Loans v Mladenko Samardzic. The guarantors in this case were the parents of a son who needed additional funding for his business. The son arranged for his parents, who were older and not native English speakers, to take out a mortgage on their property. The court ruled that the parents were not coerced into signing the paperwork and that they were willing to take the risk. However, the court also ruled that the loan would be canceled due to the fact that the lender did not verify that the parents would be able to repay the loan.
Though it is not recommended that anyone become a guarantor, some people will inevitably choose to do so anyway. If you decide to become a guarantor, there are several things you should consider before signing a guarantee. First of all, you should make certain that the borrower has a consistent, reliable source of income that he or she can use to repay the loan.
If you are signing a guarantee for a business loan, you should ask to see financial statements from the business. You may also want to get the opinion of an accountant. Next, you need to verify your own financial situation to make certain that you would be able to take responsibility for the debt if the borrower defaults on the loan. You should also discuss the details of the loan with the lender to find out exactly what amount you will be held accountable for.
Finally, you need to obtain a detailed copy of the loan contract so that you have a record of the agreement. Never agree to sign as a guarantor for a loan with no end date, such as a line-of-credit loan. You don’t want to be tied to a loan that will never be paid off. Deciding to be a guarantor is a very important decision and is not to be taken lightly in any case. Before you sign on the dotted line, make sure you know what you are getting yourself into.
What is Genuine Savings?
Genuine savings is a policy recently re-introduced by lenders wherein you must now prove a minimum of five percent savings over a period of three months to qualify for a home loan.
Each lender has variances as to what they define Genuine Savings to be; as such it is recommended that you do your research, or alternatively speak with a specialised Mortgage Broker who understands the different concessions each lender provides.
Why are lenders so strict when it comes to this policy now?
Lenders have tightened their belts ever since the Global Financial Crisis (GFC), and as a result have removed the availability of 100% loans. This type of loan is now only available with a Guarantor or Family Guarantee Mortgage.
The Director of The Home Loan Experts, Otto Dargan said “The reasoning behind this is that history has proven that First Home Buyers have the highest percentage of defaults on their home loans. Therefore, to mitigate this risk to the banks, Genworth and QBE have introduced a Genuine Savings Policy which shows the borrower’s ability to save and also to repay their loans.
Genworth can consider non-genuine savings loans, under their Home Buyer Plus product, however this does come with a much higher LMI premium and a stricter lending criteria.”
What qualifies as Genuine Savings?
Genuine Savings must add up to 5% or more of the purchase price of the property. Below is a list of what lenders consider as Genuine Savings (This does vary per lender):
- A Share Portfolio or Managed Fund held for a minimum of 3 months.
- Term Deposit held for 3 months.
- Savings or Everyday Transactional Account held in and/or accumulated over 3 months.
- Equity you already have within an existing property.
- Rental history from a Real Estate Agent (restrictions apply, and not all lenders consider this to be genuine savings-please see below for more information on this).
- Funds held in a federal government First Home Saver Account.
Please Note: Lump sum deposits into accounts are generally not considered as Genuine Savings, as lenders do prefer to see bank account statements showing regular and constant deposits.
Rent Payments as Genuine Savings.
A select few lenders will consider rental history as Genuine Savings; however they do have strict criteria that need to be met in order to receive this policy exemption:
- The property you are currently renting is through an authorised Real Estate Agent or Licensed Property Manager.
- Those on the rental agreement or lease, must be the same as those on the home loan application.
- You must have been renting at least the past 12 months with no late payments present on the Real Estate Rental Ledger.
- Although a select number of financial institutions will consider Rental History as Genuine Savings, you will still be required to provide proof that you have sufficient surplus funds to complete the settlement of your loan.
How do I apply for a Home Loan with Genuine Savings?
An experienced Mortgage Broker such as The Home Loan Experts will be able to assist you with structuring your Home Loan to best meet the lenders criteria.
Moving to a new country and buying a home in a foreign land can be a daunting task! Without any knowledge of the local real estate market or an understanding of the legal system it is easy to make mistakes that can cost you a small fortune. In addition to this many new migrants have no credit history in Australia, are on a temporary visa and don’t know which banks can give them a mortgage.
Here are some basic tips to help you get started on the path to home ownership.
1. Find out if you need government approval
Did you know that if you are not a Permanent Resident or Australian Citizen then you may require approval from the Foreign Investment Review Board (FIRB) before you buy a property? Don’t worry, the vast majority of FIRB approval applications are approved. However you must make sure that you adhere to their guidelines. These include;
- Foreign citizens living overseas: You can buy an investment property in Australia as long as the property is brand new. You are also allowed to buy land and build a new property. You cannot buy an existing residential property however investment in commercial property is allowed. You cannot buy a home to live in as you do not have a valid visa which allows you to live in Australia.
- Temporary residents: You are allowed to buy a home to live, however you must sell the property when your visa expires and you leave Australia. If you successfully apply for Permanent Residency then you are allowed to keep your property. As a temporary resident you may not be required to submit a formal application for FIRB approval.
- Foreign citizen spouses of Australian citizens: No FIRB approval is required.
As you can see, most temporary residents have nothing to worry about! However you should talk to the FIRB to confirm if you need to submit a formal application before you begin looking for a property. When you find a property please make sure you put a clause in the contract allowing you to pull out from the purchase if you are not granted FIRB approval.
2. Select your professional advisors
Incredibly some new migrants try to handle the legal paperwork and loan application on their own! This is something that most Australian citizens, even those with a background in law, do not attempt to do themselves. It is essential that you seek help from the right people, to make sure that you avoid making costly mistakes.
There are two main professionals that you will need help from when buying a home in Australia; A conveyancer or solicitor and a mortgage broker.
A conveyancer, solicitor or settlement agent (in WA only) is used to help you take care of the legal paperwork, review the contract of sale, order inspections & checks on the property, liaise with the vendor, help you obtain FIRB approval & to guide you through the buying process. You can expect a conveyancer to cost between $800 and $2,000. You should find a good conveyancer before you begin looking for a property.
A mortgage broker will first complete a credit analysis & needs analysis to work out which lenders you can qualify for a loan with, and then which loan products suit your situation. There are some mortgage brokers that specialise in non-resident home loans for temporary residents. It is critical for you to seek expert advice as many banks have restrictions on lending to people who do are not Australian Citizens or Permanent Residents. In most cases you will not even pay a fee for the services of a mortgage broker as the banks subsidise their services for arranging the loan, completing much of the processing & managing the relationship with you as the borrower.
3. How big will your deposit / down payment need to be?
How much of a deposit will you need? How much will government taxes (known as stamp duty) and other purchasing costs amount to?
As a general rule you should allow 4% to 5% of the purchase price to cover the costs associated with buying a property in Australia. The majority of this is stamp duty paid to the State Government however this figure also includes conveyancing fees, registration fees , mortgage fees and inspection costs.
In addition to these costs you will need funds to make up the difference between your mortgage & the purchase price of the property. In most cases this is 10% to 20% of the purchase price, depending on how much you are allowed to borrow. So in total you need 15% to 25% of the purchase price to be able to buy a property in Australia.
4. How much can you borrow?
As a general rule if you are foreign citizen living overseas or a temporary resident of Australia then you can borrow up to 80% of the value of the property you are buying. From a banks point of view, the property value is the lesser of the purchase price or of the valuation they obtain as part of their loan approval process.
However, if you are a temporary resident and have been in your job for 12 months then a select few banks can make an exception to their normal lending criteria and lend you up to 90% of the property value! If you are married to or defacto with an Australian Citizen or Permanent Resident then you may even be able to borrow up to 95% of the property value!
The most common types of temporary residents that buy properties in Australia are those on either a Employer Sponsored Work Visa (Subclass 457) or a Partner Visa (Subclass 820).
You can read more about temporary resident mortgages on the Home Loan Experts website.
5. What do you need to know about Australian Mortgages?
There is just too much to say about this topic in this one article. However, you should at the very least arm yourself with a basic understanding of how borrowing money in Australia works.
Expect the banks to cause delays and make some mistakes! They are a long way behind their UK & US counterparts that have invested heavily in their computer systems. A good mortgage broker will help you to avoid these problems.
Most banks now assess loans using a credit scoring system. Effectively your loan is assessed by a computer! This will take into account the savings you have, your employment & residential stability, the area you are buying in, your credit history (or lack thereof) and many other aspects of your situation. Some banks can take a common sense approach and override their credit score if their system declines your loan, however most can’t do this!
In particular making too many applications for a mortgage or credit card will damage your credit history and may result in the banks seeing you as a “credit junkie”. You should just put in one application for a mortgage and get one approval. If you want to shop around then do it by speaking to the banks, not by lodging multiple loan applications!
Australian lenders love to see someone that can save a deposit on their own! Open up an Australian bank account, move any funds you have overseas into the Australian account and then continue to add to these savings on a regular basis. Once you have a three month history of “genuine savings” then you will be seen as a low risk by the Australian Banks.
Your living expenses will be taken into account when assessing your ability to afford the debt. This includes a notional living expense for you, your spouse and the children you have. In addition to this they may take into account private school fees, health insurance, gym membership, pay TV subscriptions and other expenses.
Some banks do not accept applications from foreign citizens under any circumstances! Apply with a foreigner friendly bank and you’ll find it much easier to get an approval.
6. Do your due diligence on your property market
The best way to start your house hunting is by choosing some suburbs or areas that interest you. You can use RP Data or Residex reports to find out more about the median house prices or even the demographics of a suburb.
Drive around and get to know the suburb well. By talking to local real estate agents and small business owners you can get to know the streets to avoid and where the best streets are. You can use Google Maps to look at available public transport, find local schools and commercial centres.
When you find a property that you like then consider talking to the neighbours to find out more about the property, in particular to find out if there are any problems that you should be aware of. When you are in the final stages of your negotiations then you should order a pest inspection, building inspection and strata report (for units and townhouses) to make sure there are no nasty surprises!
One of the biggest problems that new migrants have is to work out the value of a property. Most properties in Australia are relatively unique, and prices can vary significantly between neighbouring suburbs. This is a stark contrast to the UK where property values are easier to estimate as there are more older houses and they tend to be relatively similar to their neighbouring properties.
The easiest way for you to work out the value of a property is by using comparable sales in the same area in the last six to twelve months. You can read this article on how to value a property for more information.
7. Avoid the common mistakes!
Without a doubt, the most common mistake that new migrants make when buying a property in Australia is to assume that they will get approved for a mortgage. You should always obtain a pre-approval before you make an offer to buy a property. If you sign a contract, and then can’t come up with the funds to buy the property, then you may lose your deposit or be sued by the vendor!
Do you have a property overseas? What about foreign credit cards and mortgages? Most banks are actually very conservative in the way that they assess your foreign assets & liabilities. In many cases they will take the foreign debts into account when assessing your ability to repay a debt, yet will completely ignore any foreign rent, investment or business income! It all comes down to presenting your application in the right way, to the right bank.
Whatever you do, don’t skip doing a pest and building inspection. For units & townhouses you will also need to do a strata inspection. These inspections will cost you just a few hundred dollars. However the potential loss if you buy a property with rising damp or a termite infestation is so high that it just isn’t worth the risk.
As a foreign citizen or a temporary resident you will not be eligible for first home buyer concessions such as the First Home Owners Grant (FHOG). These are only available to Australian citizens & Permanent Residents that are buying their first home. Some states have concessions for people buying a new property, or who are building a property in a country town. You should refer to your conveyancer or solicitor for more information about any government incentives that you may be eligible for.
The secret to successfully buying a home in Australia is to get the right advice from professionals that understand the additional requirements for temporary residents.
Can you qualify for a mortgage?
You can talk to the specialist mortgage brokers at The Home Loan Experts to find out if you qualify for a mortgage. They can have access to a range of lenders with non-resident mortgages to suit you, no matter your visa or citizenship status.
Are you an employee from overseas currently working in Australia? If your answer is yes then you may be able to apply for a home loan! Applying for either an investment property or just somewhere to live whilst you are in the country, you are able to qualify for at least the same basic competitive rates as an Australian citizen or permanent resident.
There are different names for loans to visa holders that are regularly used. Some examples include(the bottom two are far less common);
- Temporary business (long stay) Visa home loan or mortgage
- Work sponsored visa mortgage or home loan
- 457 visa home loan or mortgage
- Subclass 457 Business (Long Stay) Visa home loan or mortgage
- Employee sponsorship visa home loan or mortgage
- Employer sponsored visa home loan or mortgage
- And so on…
To quality for application you must satisfy a number of simple criteria. There are more complicated criteria relating to things such as the percentage value of the property you are allowed to borrow, and whether you are eligible for the First Home Buyers Grant.
You can find out more about this by looking up the specialists in work sponsored visa mortgages, the Home Loan Experts.
Initially you must be holding a valid 457 working visa. This means you have been working in the country for a minimum of three months and a maximum of four years. Why four years? This is the length of time the visa will last therefore it is the longest time you can work in the country without renewing the visa or applying for residency.
Importantly, if you are a foreign worker you must apply for loan approval from a body called the Foreign Investment Review Board (FIRB). In the basic terms, it assesses investment applications made by foreigners in Australia. So who needs approval?
- Australian citizens and permanent residents are exempt.
- New Zealand citizens are also able to apply without approval.
- Temporary Australian residents (employed here for over twelve months) may not need approval for most common purchases of real estate.
- You must have FIRB approval if you are a foreign citizen looking for property in Australia!
After FIRB approval, how large can my loan be?
A loan at 80% of the property value is fairly easy to find. Including the value of the property plus other fees such as stamp duty, this means that you would need to have approximately 24% of the value of the home in savings.
As mentioned above there are certain criteria that decrease the amount you need upfront, therefore lowering your deposit. This means the bank or lender loans you a greater percentage of the property value. In some cases you can even borrow above 95%. Some criteria the lenders take into consideration include;
- A married or defacto spouse living in the country.
- If you have been in Australia longer than twelve months and are therefore classified as a temporary resident.
- If you have savings in a savings account, shares, or a term deposit of at least 5% of the property value. This proves you are fairly careful with money and can service a larger loan.
- You profession such as whether you work as a medical professional.
Follow the links below to talk to a mortgage broker and find out if your situation qualifies you for a larger loan.
Once your visa is close to expiry and you do not want to sell your home, there is always the option of applying for permanent residency. This is a fairly common way for foreign workers to keep their property in Australia. Some of course have found fairly permanent employment or start a family and decide to live here.
Now I have more information, what do I do now?
It is important to get the right information specific to your situation!
If you are declined a 457 visa mortgage even once it can damage your chances of approval going forward. Discussing this with a mortgage broker BEFORE you apply is an important step. Their services are normally free and can help make sure if you qualify you can find approval the first time you apply.
The Home Loan Experts have mortgage brokers who have been finding these loans for clients for years. Contact them now on 1300 889 743 or enquire online to discuss your circumstances.
What is a Family Pledge Home Loan?
Have you heard of a guarantor home loan? A family pledge home loan is basically a type of guarantor loan where your family supports your application to purchase property. They can do this in three different ways;
- Equity support – Using real estate they own as security for your loan
- Income support- Income not property is used as security for your loan
- A combination of BOTH equity and income support
Depending on the lender, a guarantor loan has a number of different names. These in include the family guarantee, family support, family equity and fast track loans. In fact St George calls its guarantor loan the St George Family Pledge Home Loan!
This can make it rather confusing so using a mortgage broker specialising in guarantor loans such as the Family Pledge Home Loan is a must.
Equity Support in More Detail
Using equity in the home is the most common form of security used for guarantor loans such as the Family Pledge style loan. Many guarantors do not use their own home as security either. Other types of property security such as investment properties are perfectly acceptable.
You can avoid Lenders Mortgage Insurance (LMI) and save money! Banks such as St George believe there is a greater chance they will lose money if they loan more than 80% of the property value. This is where you have to pay an insurance fee called Lenders Mortgage Insurance (LMI).However with equity support the guarantor takes on this liability.
Basically a Family Pledge Home Loan Means that the lenders do not have to shoulder the liability of loans greater than 80% and therefore you don’t have to pay LMI.
No deposit home loans have also been removed from the market. Therefore if you want to borrow 100% of the purchase price or more, Family Pledge Home Loans have become the only way to get approval.
You must be careful when using a guarantor who still has their own loan repayments for their property. There must still be enough equity owned by the guarantor to cover the liability.
Income Support in More Detail
Income support is less common and happens in different circumstances. Those who would normally be unable to service a loan may be able to find approval from lenders using this income guarantee. It is normally used when your income is low and expected to rise in a fairly short period of time. For example just before a promotion or during a probationary period of employment.
Income support is usually determined on a case by case basis and not all lenders will consider this type of guarantor. If you want to borrow more than 80% of the property value you must also combine income support with equity support.
So what are benefits of having a Guarantor?
- Most importantly you are far more likely to get approval!
- You can reduce the risk of your guarantor with a limited guarantee (see below).
- Buy your property without having a despite saved.
- You can borrow more. Up to and beyond 100% of the purchase price.
- You do not have to pay Lenders Mortgage Insurance (LMI). Thousands of dollars can be saved!
- Basic loan discounts and professions packages can be the same.
To find out more about a limited guarantee before you talk to a specialist mortgage broker.
The Home Loan Experts have created a comprehensive Guide to Guarantor Loans, and are experts at gaining approval for Family Pledge Home Loans. You can also use their Guarantor Loan Calculator for a basic idea of your approval chances and limited guarantee.
You can damage your credit score every time you are declined a loan application. Prevent this by applying with the right lender the first time by talking to a mortgage broker specialising in these loans such as the Home Loan Experts.
How to purchase a property with your partner while on a temporary visa?
Are you on a Spousal Visa and have approached mortgage brokers and financial institutions, only to be told you can only borrow up to 80% of the value for the property you are looking to purchase?
You will be happy to know then, that this is not the case – if you apply with the right lender it is possible to obtain a mortgage of up to 95% of the property value!
Which types of Partner Visas are eligible for a mortgage?
Partners or fiancés of Australian citizens, Australian permanent residents or eligible New Zealand citizens may apply to enter and remain permanently in Australia. Partner category migration may apply to:
- People intending to get married (fiancés).
- Married partners.
- De facto partners (including those in a same-sex relationship).
The most common visa types that are accepted for a mortgage are:
- Partner Temporary Visa (Subclass 309).
- Permanent Visa (Subclass 100).
- Prospective Marriage Visa (Subclass 300) – Note that additional lending criteria may apply.
- Spouse or Interdependency visa (subclasses 310/100 and 826/814).
All of these visa types are acceptable for a home loan. If you are another type of temporary resident, such as a 457 visa holder, that has met an Australian partner after moving to Australia then you may still be eligible to borrow 95% if your co-borrower is an Australian Citizen.
How do I qualify for a mortgage on a Spousal Visa?
If you intend to borrow more than 80% of the property value, there are a number of hurdles that you will need to jump through.
Such as, you will need to be able to prove that you have stable employment and a steady income. You have sufficient surplus funds at settlement to cover the cost of Lenders Mortgage Insurance (LMI) and solicitor/conveyancer’s fees.
You will need to have a strong asset position and (at the very least) 5% in genuine savings. Genuine savings is money that you have saved yourself, not money received from your parents or from the sale of assets overseas.
How much can I borrow?
The amount you can borrow can vary greatly between different lenders, this is largely because of different policy restrictions lenders impose on those applying for a mortgage while on a Spousal/Partner Visa.
This is why it is critical to speak with an experienced mortgage broker who has the ability to negotiate a better deal for you, and understands the different policy restrictions each lender has.
A mortgage broker can assist you in determining as to how much you can afford to borrow by entering your details into the serviceability calculator of several lenders that accept people on partner visas.
For more information on mortgages of this nature please read the spouse visa mortgage page on the Home Loan Experts website. They can provide you with advice and tips on how to make sure that your home loan will be approved.
Many employees depend on overtime as a large part of their income, especially when employed in essential service industries. Overtime can vary dramatically from week to week, however there are some industries in which working long or unusual hours is actually the rule, rather than the exception. This means that your income from the extra hours can be relied upon to make your mortgage repayments.
Lenders generally see overtime as different to a base wage or salary and in many cases can be fairly conservative, often not including it when assessing your ability to afford a home loan.
You can qualify for a home loan! The secret to getting your overtime income considered as part of your borrowing capacity (serviceability) is to apply with a lender who can accept your overtime income. Speak to a mortgage broker such as the Home Loan Experts who specialise in overtime income mortgages.
What effect can overtime have on my borrowing capacity?
Your serviceability can be drastically affected if a large portion of your income is received as overtime.
- Most banks: Do not include overtime income or only use 50% of your overtime income, even if you can prove that you have received it regularly for several years.
- The least conservative lenders: Require just a three month history of earnings to use 100% of your overtime income.
Are you employed in an area classified as an essential service?
Employment classified as essential services can have up to 100% of your overtime considered by more lenders. Some examples of these include:
- Education
- Police, Fire and Rescue
- Emergency Services
- Healthcare – Nursing in particular is readily accepted
- Utilities such as Water and Electricity
- Waste Management
Please talk to a mortgage broker such as the Home Loan Experts about your overtime income mortgage application.
What overtime income and documentation will lenders accept?
As overtime payments in general are fairly irregular, lenders can be conservative when considering overtime income as part of your ability to service a loan. Loan applications are usually assessed on a case by case basis and are dependent on such variables as:
- The type of employment
- The industry you work in
- Your number of regular work hours
- You stability of employment such as length of time in your current job
It is unlikely your loan will be approved if you are still on probation with your employer, unless you apply for a probation mortgage with a lender that does not consider being on probation to be a high risk.
The least conservative lenders can accept:
- A 3 month minimum history of receiving overtime.
- Up to a maximum of 70 hrs / week in total hours worked at 100% overtime income consideration.
- Either a group certificate, YTD income figure or 3 months payslips as evidence of your overtime. This involves presenting your loan to a lender that works with the evidence provided.
- Employees from all industries such as mining, hospitality, trades, construction and hospitality, just to name a few.
What loans are available what features can I use and how much can I borrow?
Overtime income mortgages can use all types of loans such as basic loans, professional packages, fixed rates and lines of credit. You can typically borrow up to 90% of the property value and as much as 95% for applicants the lenders consider a lower risk.
Can’t afford the deposit? Don’t worry, you can also apply family pledge home loan to borrow up to 100% of the property value. For this to be an option, you will need your parents to support your application.
Who may apply for an overtime income mortgage?
Employees from all industries may qualify for an overtime income mortgage. Examples of forms of employment include sales assistants and truck drivers working nighttime hours, to caterers and mining staff working weekend shifts, and many more.
Do you qualify for a home loan?
Mortgage brokers can provide invaluable insight into how lenders will view your application. To find out more information on this topic you can contact the Home Loan Experts through their overtime income mortgages page.
