A Guarantor Story

2011 April 23

Becoming a guarantor for a friend or relative can endanger your most precious assets. Consider the following story:

In 2004, a young girl wanted to purchase a piece of property and build her dream home. She asked her mother to sign as guarantor for a loan in the amount of $380K and her mother agreed. The bank did not advise the mother to seek legal counsel or financial advice, and the mother signed the guarantee. The daughter purchased some land for $150K and saved the remaining money (supposedly) to build her home.

Later that year, it came to the mother’s attention that her daughter was using the loan money for purposes other than home construction. The mother made a trip to the bank to discuss the matter. The loan was not being used the way it was supposed to be and she did not want her daughter to draw on the loan for anything other than building her house. The bank assured the mother that any further drawings would require a receipt.

Shortly after this conversation at the bank, the mother called to make sure that everything was okay with regard to the loan. The bank informed her that they could not tell her anything about the loan for privacy reasons and that she would need to discuss the matter with her daughter directly. Her daughter told her that everything was fine, so the mother put the issue to rest.

In June of 2009, the mother received a notice from the bank informing her that her daughter had defaulted on the loan and that $4000 was owed. The mother immediately called the bank and was told that $380K was now owed on the loan. She also learned that her daughter had been taking money out over and over again without any receipts. The bank further informed her that this type of loan did not require her daughter to produce receipts. None of the money borrowed was used for home construction.

This bank should never have agreed to allow the mother to sign as guarantor. She did not understand the process, and yet they never advised her to seek counsel from a professional. In addition, when the mother had initially complained to the bank about the way her daughter was using the loan, they never told her that the loan did not require receipts. In fact, they assured her of exactly the opposite. The bank had essentially given a young girl a $380K credit card in her mother’s name.

At this point in time, the mother and daughter are no longer behind in paying off the home loan. However, the daughter will never be able to pay the loan off fully until she is well past retirement age. In addition, the health of the mother has been affected, and, as can be expected, so has her relationship with her daughter.

What is the Answer?

This story is very frightening indeed. Most all banks will ask anyone wishing to act as guarantor to obtain legal or financial advice prior to allowing them to sign the paperwork for liability reasons. In this case, since the bank did not do this, they may be subject to legal action.

In order to rectify the situation, the mother should first call the bank and request copies of all the documents associated with the account including the loan application, signed guarantee, and final loan document. Next, the mother needs to educate herself about the Credit Ombudsman guidelines, as well as call them to talk about the situation. The mother would then need to visit the bank with her complaint about their negligence and let them know that she plans to take further action if they don’t help her. Finally, the mother would have to seek legal action if the bank refuses to cooperate.

It is made clear in this tale that the mother has suffered from this arrangement. Her health, her relationships, and her credit have all been affected. However, because the situation has not yet caused the mother direct financial loss, a court may be reluctant to offer sympathy. In fact, she may need to reach the point of direct financial loss before she will be able to successfully battle the bank in court.

As anyone can see from this situation, becoming a guarantor is no simple decision. Signing a guarantee makes you personally responsible for the debt or mortgages in question in the event that your friend or relative is not able to pay. If the payments are passed to you and you can’t afford them, your assets are up for grabs. Before you become a guarantor for anyone, it is essential that you seek financial and/or legal advice to ensure that you are well-educated about the process. In addition, you need to make sure that you have the funds to pay off the loan should you have to. Finally, don’t sign any forms until you are certain that you agree with all of the conditions they impose.

More information about guarantor loans.

Mortgages For Recent Immigrants

2011 April 22

Immigrants who have recently moved to Australia can often find it difficult to receive approval for a mortgage. Since you do not have extensive history with income from within the country, the bank will often consider you to be too high of a risk to work with. Thankfully, not all lenders approach the subject in the same way.

Recent immigrants face two primary obstacles that can make it more difficult for them to receive approval for a home loan: a low or absent credit rating and a small or nonexistent deposit.

Your Credit Rating

Credit ratings are national. If you had a good credit rating in the country where you used to live, this information will not be transferred over to Australia. When a lender tries to gain access to your credit history, they will find that the information is lacking, if there is any at all. Most lenders prefer to have a large amount of information to work with. If they don’t have any, they may refuse to work with you at all.

Deposits

This is more of a circumstantial issue, and not all immigrants will have this problem. In many cases, if you only moved to Australia recently, you might not have saved up enough money to make a large deposit on your home loan. It is likely that you already spent a fair amount of your money trying to move to Australia in the first place. You simply may not have the resources.

On the other hand, if you previously owned a house, you are less likely to sell it if you move to another country, and would rather own both homes. Most people use the funds from their previous home to make a down payment on their new home, but immigrants often don’t have this luxury.

Having no down payment, or a small down payment, can have several different effects on how a lender will work with you. Some lenders won’t work with you at all if you can’t make a deposit. Others will charge you a higher interest rate because they consider you to be a higher risk.

In many cases, you will also need to pay for the costs of lender’s insurance. When you make a deposit of 20% or more, the bank has the assurance that they will usually be able to break even if the house is foreclosed and sold by the bank. With a smaller deposit, they don’t have this reassurance. Lender’s insurance compensates the lender if the home is foreclosed. Unfortunately, this means more costs for you.

Mortgage Brokers are Advised

It’s not necessary by any means, but most financial experts would agree that it is a good idea to get in touch with a mortgage broker. In reality, this is true for anybody who is buying a home, but it is especially helpful for people in your situation.

Since it is harder to find a lender who will work with you, a broker dramatically simplifies this process. A broker has access to people in the industry. They know which lenders will work with immigrants, and which won’t. They can speak directly with underwriters and explain your financial situation. They know whether or not a bank offers a fair home loan to people in your circumstances. Since they speak the language, they can interpret the terms of a loan more easily than you can, offering you a level of security that you wouldn’t have otherwise.

Whether or not this is the case in the country that you came from, mortgage brokers in Australia are typically free. They do not work for the lenders, but they receive compensation from them. In some cases you may be required to pay a fee to the broker, but typically this is not necessary.

Advice for Immigrants

There are a few steps that you will need to take in order to obtain a loan from a reputable lender. Before you can fill out any kind of application, you will need an address. In some cases you can use your employer’s address. If you choose to do so, you will need to get permission from your employer. If you have a temporary place of residence, many banks will be willing to use this address as well.

You will also need to set up a bank account. A name, address, employer, and visa status will be necessary in order to accomplish this. Banks are eager to get customers, and it is rarely difficult to set up an account.

Get started on building credit as soon as possible. One of the best ways to accomplish this is by opening up a credit card. Try to use a credit card as though it were your bank account, only buying things that you can afford with the money that you have in the bank. Use your credit card to pay for everything, and pay off the balance every month. This helps you build up credit.

Remember, banks need borrowers in order to earn money. Walking away from a lender never means that you won’t be able to walk back in the next day. As the borrower, you are the one with the power, not the lender.

Learn more about mortgages for immigrants.

Qualifying For A Low Doc Mortgage

2011 April 21

There are many mortgage lenders, banks and brokers that now offer low documentation mortgage loans to people who are self-employed, independent contractors or simply prefer the privacy of not declaring their income. Borrowers who are self-employed often having trouble securing a traditional mortgage home loan because they do not have formal income verification. A Low Doc mortgage loan offers those borrowers the flexibility of a stated income or Low Doc mortgage loan based only on a self-declaration of income, along with a credit report and a twenty percent down payment on the property.

If you are applying for a Low Doc mortgage loan, it is important to remember that although you can have bad credit, you most likely will need to have a clean track record for the past twelve months. In other words, it would be best to keep your credit report in good shape for at least twelve months before you apply for a Low Doc home loan. There are also some additional considerations. For example, most Low Doc loans are capped at eighty percent of the appraisal value of the property, for a maximum loan amount of 1.5 million dollars, and Low Doc Loans are often more expensive than traditional full documentation mortgage loans due to the higher credit risk profile.

Even with these limitations, Low Doc or No Doc loans are very useful for borrowers who do not have formal income verification documentation. Borrowers who are independent contractors or self-employed often fit this profile, because they do not have W’2s or tax returns to verify their income. Low doc loans allow banks and mortgage brokers to extend credit to borrowers who have a good credit history, at least for the previous twelve months, without requiring proof of income. Remember that your credit history over the last twelve months is weighed the most heavily, as opposed to your entire credit history.

Acquiring a Low Doc mortgage loan may be the first step to rebuilding a great credit profile. Many people with credit problems find that a home loan, with less stringent guidelines than a traditional mortgage loan, will help them to repair their financial situation and get them back on their feet. In order to qualify for a Low Doc home loan, you may need to first obtain a personal debt consolidation loan to roll your monthly payments together, thereby lowering your overall monthly debt load. A debt consolidation loan for people with bad credit may even keep you out of bankruptcy, while you are working on qualifying for a Low Doc mortgage loan.

Low Doc Home Loans are usually more expensive than traditional home loans due to the higher credit risk profile. These types of mortgage loans are mainly geared for customers who want to purchase a residential house, refinance an existing home or buy an investment property. This is one of the easiest mortgage loans to apply for and is quite fast in the underwriting process due to the limited documentation requirement. As the borrower, you would only need to sign a statement certifying your income. You will also need at least a 20% down payment and a decent, although not perfect, credit rating. Additionally, before applying for a Low Doc loan make sure that there are no delinquencies on your credit report over the last twelve months.

After twelve months of timely mortgage payments, you can apply to roll your loan over to a fixed rate. In order to do this, you must provide proof of your stated income from you initial mortgage documentation. Usually this proof comes in the form of tax returns. The income documentation must at least match the stated income on your original loan documents. If you have a variable rate mortgage, it is important to roll your home loan over from a variable rate to a low, fixed rate, so that you don’t get over your head if the interest rates rise expectantly.

A Low Doc mortgage loan is a relatively quick and easy process to securing home financing. It is very important before you apply for a Low Doc loan to make sure that you have a substantial down payment of twenty percent plus closing costs, as well as a clean credit report for the last twelve months. Low Doc or state income documentation loans are wonderful financial products for borrowers who do not have formal verification of their income. They are also great financial instruments for re-establishing a good credit profile.

If you have bad credit and are self-employed, do not lose hope! With some diligent effort and savings, you will be able to secure a Low Doc mortgage loan from a financial institution, mortgage broker or bank. If you have bad credit or a very high debt ratio, your first step may be to secure a personal debt consolidation loan. A debt consolidation loan will help you to repair your credit rating and lower your overall monthly debt load. With this advantage, you will be in much better shape to qualify for a Low Doc mortgage loan.

Lo Doc Loans: 60% LVR

2011 April 20
by admin

What are we talking about when we use the phrase “60% LVR lo doc loan?” There is plenty of jargon in there that the average person might not be fully aware of. The LVR stands for loan to value ratio. To say that a loan has a 60% LVR is to say that the value of the loan is 60% of the value of the home, meaning that you would have saved up a deposit that is worth 40% of the value of the home.
To say that it is a lo doc loan is to say that the borrower either can’t or prefers not to provide proof of their income. Lo doc essentially means that you will not be required to provide as much documentation as you normally would. Rather than offering proof of your income, you will simply declare it.

Putting all of this together, a 60% LVR lo doc loan is a loan where you would save up a 40% deposit and you would declare your income rather than supplying documentation of it. This option is intended for people who are self-employed, where it is difficult to provide reliable documentation of your income.

Are Lo Doc Loans with a 60% LVR Still Available?

For the majority of types of loans, the answer to that question is still “yes.” Lenders who are willing to provide this type of loan are still quite numerous, and include national banks, local banks, and non bank lenders.

Since banks are often hesitant to work with people who will not or cannot supply proof of their income, it is a good idea for a borrower to get in touch with a mortgage broker. A broker is your “inside man” (or woman). They know which lenders will be willing to work with you, and which ones will offer you a fair deal, rather than trying to charge you unfair interest rates by exaggerating the risks of your situation. In many cases, brokers also have special deals worked out with the lenders, allowing them to offer you loans that you wouldn’t be able to receive otherwise.

Since you are providing a 40% deposit, the risks to the lender are minimal. In the unlikely situation that you were unable to pay off your loan, the bank would be forced to take possession of the property and sell it. With a 40% deposit, the odds that they would still make a profit or at least break even are very high. With this level of security, many lenders are willing to offer a loan with terms very similar to the loans they would offer their “normal” customers.

That said, none of this means that lenders will offer a loan to anybody with enough equity. They still prefer not to kick people out of their homes, nor do they enjoy trying to sell homes on the market. Selling homes isn’t a bank’s job, after all.

Do You Need to be Self-Employed?

At this point, you do. In the past, it was possible for PAYG employees to apply for a lo doc loan, but this option is no longer available. Consumer credit protection laws have been introduced that make this type of loan illegal in the vast majority of cases.

Is it Possible to Refinance with a 60% LVR Lo Doc Loan?

In most cases the answer is “yes.” Lo doc loans with an LVR higher than 60% often require lender’s insurance because the lender feels that they are in a position of risk. But with a 40% deposit, the risks are much lower, and you will typically be able to refinance as long as you have a reasonable reason to do so and your financial situation looks good.

Will Bank Account Statements or a BAS Be Required?

In many cases, they will be, but the answer to this question will actually depend on which lender you are working with. There are some lenders who will be willing to offer this type of loan without either form of documentation. These lenders can be quite difficult to find, so you will want to talk with a mortgage broker if you feel that this is a necessity.

That said, it is often a good idea to provide this information anyway. There is no benefit to getting approved for a loan that you cannot afford to repay. Defaulting on a mortgage means that you will lose your home, and that your credit rating will be destroyed for many years to come.

It is also wise to keep in mind that the less documentation a lender asks for, the more likely it is that they will charge you higher interest rates. They are putting themselves at risk by not asking for any kind of verification. Lenders that are willing to do this have to make a profit one way or another.

Learn more about lo doc loans.

Family Guarantees

2011 April 18

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.

Consequences of a Guarantee

2011 April 15

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.

 

Genuine Savings

2011 March 31

What is Genuine Savings?

A couple planning to save for their homeGenuine 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.

Tips for buying an Australian property

2011 March 29

A family of migrants to AustraliaMoving 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.