Things that could trip you up when applying for a home loan

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Buying your dream home is exciting, so the last thing you want is for your home loan application to be held up. While many factors are considered in assessing an application, showing stability and consistency is key for lenders to determine whether you will be able to repay the loan. But sometimes what’s happening in your life can trip you up. Here are some things to be aware of.

  • If you’re at the other end of your kid-wrangling years and looking at returning to work after an extended break, it may be best to wait until you’ve been back at work for a few months before applying for a loan. This will give you time to show stability and consistency in your employment record.

 

  • Having a consistent employment record doesn’t mean you need to have the same job for years, but if you’re planning on applying for a home loan, it might be best to hold off changing jobs. If you do have to, it’s worth knowing that with some lenders you’ll need to show at least two pay slips with the same employer.1 If you can show over 12 months in the same job that’s even better.

 

  • If you have a probationary period in your new role, it could also be difficult to have a loan approved until you’ve completed it and the role is made permanent.

 

  • For the self-employed, demonstrating a stable income can be particularly difficult, which is why it’s a good idea to have an accountant. They can help you put together financial statements, which you’ll need to include as part of your loan application. Generally, you’ll need at least one year’s history to support your application.

 

  • If overtime or shift allowances are a significant part of your income, your broker will be able to provide advice on which lenders may take these into account for loan repayment ability, as not all do.

 

– Your Loan Hub

RBA leaves rates on hold at 1.5 per cent

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The Reserve Bank board has kept its cash rate on hold at a record low of 1.5 per cent for the 13th consecutive month, amid a host of signs that the economy is picking up.

Treasurer Scott Morrison told the Coalition party room as the board was meeting that job advertisements were growing strongly, climbing 13 per cent in the past year.

Jobs growth was the strongest it had been since 1978, employers’ wages bills had climbed 1.2 per cent in the June quarter and non-mining investment had climbed 2.6 per cent.

The Australian Bureau of Statistics will provide a full accounting of the June quarter on Wednesday with the release of the national accounts at 11.30am. Market economists are expecting growth of 0.7 to 0.9 per cent, a jump from 0.3 per cent in the March quarter.

Although a further cut in the cash rate looks unlikely for the present, an easing in the CoreLogic measure of house price growth to near zero in Sydney and Melbourne in August appears to remove one of the arguments for an increase.

Buying A Home That Can Grow with Your Family

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If you are a first-time homeowner, or are purchasing a home after a major life change such as marriage or having children, what should you consider to be sure your new home can grow with your changing family?  The time and effort that go into purchasing and decorating a new home, not to mention finding it in the first place, means that you’ll want to ensure that your home will be right for you and your family for years to come.  So, what should you look for in your new home so that it will give you enjoyment and be functional both now and in the future?

Size

Though a cute two-bedroom home may be right for a newlywed couple, this type of space will likely soon be outgrown if there are any children in your future or if you and your spouse like to entertain.  You will also want to consider the number of bathrooms and the facilities in them.  Having only one toilet or shower can certainly put stress on a growing family.

Features

Special features of a home, such as an outdoor room, central air, and a large garden can make your home a more functional and enjoyable space, especially if you have or are considering starting a family in the near future.  You may also want to consider the age of the home you purchase and its features or appliances, as this may lead to future costs that may put stress on your financial situation at a time when one spouse may be at home caring for the children.

Location

Location is also an important consideration when choosing a home that can grow with your family.  Choosing a safe neighbourhood is always an important point when selecting a family home, but you will also want to consider the proximity of good schools, community centres, and shopping.  Also, facilities such as parks and libraries can make a neighbourhood truly a great place for families.  You may also want to consider the demographics of the area in which you are purchasing in order to be sure it is a match with your values.

As the old adage goes, home is where the heart is, and choosing a family home that is right for your family can really make all the difference in having a happy, fulfilling, and safe family life.

What counts as genuine savings in a loan application?

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If you apply for a home loan, particularly if the loan is for more than 80 per cent of a property’s value, you’ll more than likely have to prove to lenders that you have a satisfactory amount of savings. This is to demonstrate your ability to funnel a portion of your income into repayments.

Although it can differ, in most cases lenders generally look for consistent additions to savings over a period of at least three months and preferably a year or more. This means that the following are not considered genuine savings:

  • a cash gift
  • an inheritance
  • casino/other gambling winnings
  • proceeds of the sale of a non-investment asset
  • government grants and other finance offered as incentives

 

For those who don’t have any genuine savings but still want to obtain finance, there are options, these include:

  • Guarantor loans – Having a guarantor on your loan may mean that no deposit is required, with the equity or asset the guarantor stakes standing in for a deposit.
  • Other significant assets such as shares, managed funds and/or equity in residential property – Depending on your chosen lender, cash isn’t the only thing accepted as genuine savings. There are even situations where the sale of a vehicle can be considered as genuine savings if proved that it was owned for three months or more.
  • A strong rental record may see a lender allow you to forgo the genuine savings route – Some lenders will waive the requirements if a letter can be produced from a licensed real estate agent confirming that rent has been paid on time and in full for the preceding 12 months, as it highlights your ability to make repayments on time and on an ongoing basis.

Are you prepared for an interest rate rise?

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While Aussie mortgage holders have enjoyed low interest rates for several years now, the party might soon be over.

The Reserve Bank of Australia revealed in the July minutes of its monetary policy meeting that it considered the neutral cash rate to be 3.5%, a two-percentage point increase over the current record low cash rate of 1.5%.

This means Australians should potentially brace themselves for rate hikes soon.

Here are some suggestions to prepare for a rate rise:

  1. Crunch the numbers

Ask yourself how many rate rises would impact your money goals such as renovations and holidays. Online calculators can help you crunch the numbers.

  1. Shop around for a better deal

If your home loan isn’t charging a competitive rate now, you’ll be left even more out of pocket if rates climb higher.

  1. Consider locking in a fixed-rate

It’s worth thinking about locking in a fixed-rate loan. Look for a fixed loan that allows extra repayments so you can reduce the balance sooner.

  1. Make additional repayments now

Making extra repayments or paying a lump sum while rates are still low, helps pay off the loan sooner and minimises the impact of possible future rate rises. Loans with offset or redraw facilities also provide you the peace of mind to access that extra money, if you need.

  1. Pay off other debt

If interest rates head north, expect to pay more on personal loans and credit cards. If you have an outstanding credit card balance, try chiselling away at the debt today.

Source: Your Mortgage

Overcapitalisation, Some Common Mistakes

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Simply put, over capitalisation is when the cost of a home improvement is more than the value it adds to your property.

While some renovations can increase the value of your home, there is an upper limit on what properties are worth at any given time. 

1 – Getting Emotionally Involved

Many homeowners undertake a home renovation for emotional reasons. Very often they fall ‘in love’ with the property. This emotional issue applies to both home owners and investors. 

2 – Not Doing Your Homework on Comparable Market Pricing

Unfortunately, it is important to recognise that most suburbs have a median sale price and an upper sale threshold specific to your suburb. Even different streets in your suburb have different price thresholds; that’s because your neighbour’s houses and the general streetscape have considerable influence on the value of homes in your street. Before renovating it is important to consider the housing styles, demographics of your suburb, and sale prices achieved of other homes in the area that have recently sold.

3 – Under-Estimating all of the Costs Involved in Building

This is one of the biggest mistakes that homeowners make when renovating their homes. Homeowners typically under-estimate the costs involved in building. Such as; demolition costs, professional fees, contingencies for variations, foundation changes due to soil conditions, fit-out and landscaping, kitchens and bathrooms, escalation of building costs and delay and acceleration costs to finish the project on time.

4 – Poor Selection of a Builder

Property owners who decide to employ a builder to undertake home extensions also encounter problems because they have not undertaken sufficient research on the experience of the builder, and their past record in undertaking renovations. Especially their “variation claims” history, often Builders locks unsuspecting homeowners into building contracts which cost homeowners thousands in variation costs. Another common mistake is to let the Builder provide the design, and therefore restrict the homeowner from getting competitive quotations upon the Builders design.

5 – Doing it DIY to Save Money

Some people also make the mistake of trying to undertake home renovations themselves. This can prove costly in time and is financially unwise because a poor standard of work will only devalue the property. Character homes in particular require a higher standard of renovation work and you may need to carefully select tradesmen with past experience in this area to ensure that the work is properly completed. Always seek competent, professional advice and trades people before undertaking a major renovation.

6 – Failing to Stick to a Budget

A common problem is that home renovators do not operate within a strict budget and are unable to complete planned renovations because of a lack of money. This mistake results in homeowners financially overextending themselves through a lack of financial planning. The “Catch 22” is that renovators often can’t then sell their ‘half completed’ renovation and end up in severe financial hardship.

7 – Poor Functional Design Layout and Design

A very common problem is that home renovators end up spending too much on a poor functional layout because of the limitations of the existing building. In many cases the homeowner would have been better off, to have demolished the existing house and start all over again. Another common problem is where the style of the renovation is inconsistent with the rest of the house; you’ll often see houses for sale with a modern extension that clash with the rest of the house which is still stuck in the 1970’s. These properties are “lemons” on the market and typically homeowners lose money on these renovations.

8 – Spending Money on the Wrong Things

If you are living in a $100,000 house you will not get a good return on an investment in a $35,000 bathroom. Swimming pools are a good example of additions to a property that often doesn’t add value. Many buyers do not want the work, expense, and potential for accidents that come with a pool. The general rule is that you should not spend more than 25 per cent of the value of your home on home improvement renovations.

9 – Underestimating the Disruption to Your Lifestyle

Undergoing a major renovation and living through it, is often overlooked by most homeowners. The disruption to your lifestyle, the mess, the noise and restrictions is something that should not be discounted. If you are having major renovation (especially if you are a family with young children) consider moving out and renting elsewhere during the construction phase.

Before you make the decision to renovate or buy a new house, carefully ask yourself the following questions.

1. Decide what it is you are looking for in a final result and ask yourself if it will be cheaper to buy a different home or to renovate your old one.

2. What is the average selling price of homes in your area?

3. Will renovations alter the appearance of your home so that it appears out of place in the neighbourhood? Check the styles of other homes in the area. Keep in mind it might be a better idea to match or keep in step with the styles of other homes in the area. A poor design could devalue your home by thousands of dollars.

4. How much will renovations cost compared to what you paid for your home. What is the expected increase in value because of the renovations? 


The decision to buy a new home or to renovate is not one to be taken lightly. It is recommended that you think through every aspect of the project prior to getting started. Seek the advice of a local professional architect/building designer as well as a real estate professional if necessary to determine how the proposed renovations will affect the value of your home.

In general terms, you’ll probably avoid overcapitalising if you keep the cost of your renovations to less than 10% of the value of your home. The less you need to invest in your home to give it that wow factor, the more you can expect to get back when it’s time to sell. And always keep a close eye on the sale price of similar properties in your area.

 

Source: Gary Pemmelaar

Reserve Bank holds interest rates at 1.5%, warns on high Aussie dollar

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Despite being under pressure from tepid economic growth, weak inflation and a surging Australian dollar, the Reserve Bank has left interest rates unchanged at its August board meeting.

The stance was all but universally expected, given RBA governor Philip Lowe made it clear last week that rates would not be moving for a considerable period of time.

The market had priced in a zero possibility of a rate change into its calculations.

 

The RBA last changed settings in August 2016, when it cut the official cash rate by 25 basis points to the current historic low of 1.5 per cent.

While the RBA left its forecast for the Australian economy unchanged, it expressed a degree of anxiety about the impact a stronger Australian dollar is having on economic activity.

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

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

Many lenders offer low-doc loans for self-employed borrowers who can’t hand over payslips and employment records. This means that, rather than the usual documentation, you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.
Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan. Getting this right is more than presenting a lender with a few quick sums on the back of a napkin; it takes solid preparation.
Here are some quick tips:

  1. Reduce debt: pay down credit cards and personal loans, and be sure to lower the credit limits as they are
    paid down, as lenders assess the total credit available to you as a potential debt level, not just the
    amount you owe.
  2. Speak to a finance broker about how the structure of your business and your taxable income will impact your ability to borrow.
  3. Do your taxes when you should, and always pay your tax assessments on time.
  4. Save. Saving a deposit is obviously important, and showing your ability to live within your means and save
    is as well. This is key to serviceability – you want to show at least a six-month history of high income
    and low expenses.
  5. Go to a finance broker, rather than a bank. Finance broker have access to specialist lenders that assess
    applications on a case-by-case basis and tailor their products to self-employed borrowers and contractors,
    while many bank lenders do not.

Low-doc loans do differ from standard loans in a few ways, apart from the application process. Lenders offset the extra risk they are taking by lending to a self-employed borrower or contractor by charging slightly higher interest rates and placing some extra rules on loan-to-value ratios (LVR) and insurance requirements.
Most lenders will also insist on an LVR of no more than 80 per cent – meaning that under no circumstances will they lend more than 80 per cent of the property value, as assessed by the lender.

Loans for vacant land

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Whether you are buying land for an immediate build, as an investment or for a ‘one day I will build and live here’ dream, a vacant-land purchase can be financed by a range of mortgages.

If you are planning to build immediately, or at least soon, a construction loan might be the best option. Most lenders demand that building on a construction loan must start within a specified time.

This mortgage type allows you to draw down segments of the loan amount in stages as they are needed – for the land purchase and then for the stages of construction – which saves you paying interest on the entire loan amount when you don’t need to.

If you don’t plan to build immediately, and you want the loan for the land without any time pressures, a vacant land loan may be the best option.

While regular mortgage types can be used for the purchase of vacant land, most lenders also offer vacant land loans. Most will go up to a 30-year loan term and finance up to 90 per cent of the land’s value, and some go as high as 97 per cent loan-to-valuation ratio (LVR). Lenders’ mortgage insurance (LMI) would still most likely be payable on any LVR higher than 80 or 85 per cent, depending on the lender.

The vacant land purchase can be used to increase the equity in your existing home or investment property and, while redraw facilities are usually not available on construction loans, they may be on land loans.

If you have stumbled upon the perfect position for your dream home, future holiday getaway or retirement oasis, but aren’t ready to start building it yet, the next step is to speak to an expert about the different types of loans that can finance the purchase.

The RBA has left the official cash rate on hold at 1.5% (no change since August 2016)

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The Reserve Bank of Australia (RBA) has made its monthly cash rate call, deciding to hold the official rate at 1.5% for the 11th month running.

This decision was widely predicted with 34 out of 34 economists in a monthly RBA Cash Rate Survey forecasting the non-move. The general consensus seems to be that this will be the last hold call with 88% of economists polled saying that the next rate move would be a rise.