Today we start our two-part series on What type of buyer are you?  There is so much here that we don’t want to take any shortcuts, so the information will be delivered in two parts.  This is essential reading if you are considering applying for a home loan or have recently been knocked back.

Reading these articles won’t replace a one on one conversation with our mortgage experts at Launch Money, but it will help you understand what you need and how to prepare for that all-important home loan application.

Part one March 2019 will focus on:

• Are you a preferred buyer in the bank’s eyes?
• How do you earn your income?

Part two in April 2019 will focus on

• How do you present financially?
• How much do you need?
• What sort of property are you buying?
• What driving reason is behind the purchase?

At Launch Money, we know that each and every Bank is different, however they all have a general framework by which they assess home loan applications. These criteria determine whether you’ll be approved. Unfortunately, each bank will also have a moving set of criteria. Not only are these criteria rarely made public, they can on occasion change without notice.

This means that in a marketplace currently in flux, there can be a bit of guesswork involved in knowing exactly whether your application is going to be approved.  An experienced broker will recognise these changes, discuss them with you and where possible advocate for the most favourable result for you.

However, as mentioned there is a general framework most lenders operate on. Some common questions asked will centre around the certainty with which they can expect to get re-paid.

What kind of borrower am I?

The first detail banks will look at is exactly what sort of borrower you are. Lenders have preferred borrowers, and there are some borrowers they’re unlikely to approve.

Is my age a factor?

Whilst you must be at least 18 years of age to secure a home loan, many banks will make it difficult for older borrowers.  The premise of receiving a loan is that you will pay it off, so it is reasonable that the over 55 borrower has less income producing years to pay off the loan.   Older borrowers may have to accept a shorter loan term and provide an exit plan to demonstrate what will occur once your income ceases.

Does where I live play a part?

A lender will want to know whether you’re a permanent resident of Australia. However, if you’re not a permanent resident you’re not necessarily excluded from borrowing.

If you’re a non-resident who is the spouse or de facto partner of an Australian citizen, Australian permanent resident or New Zealand citizen, lenders will assess your application like any other resident’s application.

If you’re a non-resident, lenders may place limits on the amount you can borrow. You may need a larger deposit. In some cases, you may also have to seek approval from the Foreign Investment Review Board.

Outcomes may include a lower percentage of your income being used for assessment or a lower percentage of rental proceeds considered as income.

Can I use my company to purchase?

A lender will want to know if you’re borrowing as an individual or a collective. In other words, you may be sourcing a home loan as a company or as the trustee of a trust. Lenders will allow companies and trustees to borrow, but complicated ownership structures raise red flags at the bank with relation to the security of repayment and they will require specific documentation and are likely to have different lending criteria in place.

There are several companies or groups that are not eligible for home loans. Clubs and associations cannot be approved for home loans, and neither can limited liability companies (LLCs).

Does how I get paid rule me out??

Lenders will need to examine your work situation to determine that you have a steady source of income. The way your income is assessed will depend on your type of employment.

PAYG employees

If you’re a PAYG employee, meaning you receive a payslip with tax withheld, you should have a relatively easy time proving your income. However, there are a few things lenders will scrutinise.

• Length of employment. Although only three payslips are required, lenders usually require that you’ve been employed in the same job for 12 months, or if you have recently moved jobs, that you have remained in the same industry for two years.
• Type of employment. Lenders will want to know if you’re full-time, part-time or casual. If you’re a casual or seasonal employee you could face greater challenges getting approved for a home loan, though some lenders are willing to consider this type of employment on a case-by-case basis.  Evidence of consistency over a period of time will be required.
• Self-employed

If you’re self-employed, you won’t have PAYG payslips to prove your income. As a director you may pay yourself regularly, however as far as the bank is concerned if you are being paid by a company you are a director of, you are effectively self-employed.

You’ll have to apply for a special type of home loan known as a low documentation, or low doc, home loan.

You’ll usually be asked to provide Business Activity Statements, tax returns or a letter from your accountant. While it’s sometimes more difficult for self-employed borrowers to provide income documentation, Launch Money has relationships with lenders who specialise in providing loans to self-employed borrowers.

Don’t miss part two (2) of this series issued next month April, keep an eye out for myCONCIERGE in your inbox.  We will be looking at:

• How do you present financially?
• How much do you need?
• What sort of property are you buying?
• What driving reason is behind the purchase?

At Launch Money we believe we offer an indispensable service and hold strongly to the belief that a mortgage broker is the only party to the process who is best positioned to act as an advocate for the borrower.  Our service is more than just securing the lowest mortgage rates, we give you tailored advice to help fast-track your application with the RIGHT LENDER based on your financial goals.

Whether you are buying a new home, personal investment property, Commercial property, SMSF investment property, motor vehicle or thinking about refinancing, Launch Money can help secure a better loan and deliver a hassle-free mortgage experience for you.

To speak with a broker at Launch Money call our team on 1300 925 081.

Alternatively, you can email your questions to: info@launchmoney.com.au