Welcome to Part 3 of our Creative Financing Strategies series.
This part of the series focuses on your Loan Submission - this ISN’T something you want to mess up. Avoiding non-disclosure is critical, as are a number of other things you’ll learn from the video.
If you have a proprety financing need that we can assist you with right now, give us a call on 1300 855 430 or contact us and I’ll personally make sure you get the help you need.
Some of you may know that I am expecting the birth of my first child this Christmas. It’s an exciting time and a huge learning curve as my wife and I attend ante-natal classes, decide on prams and cots and think about how best to look after our new little bundle when we get home. During this time I have come to the realisation that there is so much I don’t know and even more that I simply cannot prepare for.
The inability to prepare is also sometimes true when it comes time to arranging finance. Situations arise that are impossible to foresee or avoid – they just happen.
Or, if a lender says ‘no’ some people give up too easily and don’t seek out other alternatives.
Considering this I decided that the best thing that I can do for you today is to illustrate some financing success stories in action… despite tightening and changing of lending policies and unexpected issues that you simply cannot prepare for.
Success Story 1
Lenders can and do make mistakes. A growing trend that I have noticed recently is that the credit assessor’s reviewing your finance applications are either less experienced or dealing with large quantities of applications. Unfortunately the outcome for clients can be declined applications due to the credit assessor’s inability to assess income correctly or their inability to give complex applications the time needed to complete assessments correctly.
At the moment lenders have less money to lend out so they are picking and choosing who they want to lend money to. If there are difficult or complex lending scenarios, credit assessor’s are more inclined to say no. Its human nature to take the easy road after all.
My role today more than ever is to be a financial advocate for my clients. In fact I am finding myself actually teaching some credit assessors how to read my clients financials correctly so that the income is assessed accurately.
Of course I am happy to do this, however I am positive that some people who either go directly to a lender or dealing with an inexperienced mortgage broker are having their applications declined, simply because the person assessing the application could not / did not assess the income correctly!
I have at least 3 applications proceeding at the moment that were initially declined due to inaccurate reading of financials by credit assessors.
If you know of someone who has a lending application inexplicably declined please ask them to call Loans Australia on 1300 855 4300. One of our greatest skills is taking a complex finance situation and presenting it to a lender so that it is easily comprehendible.
Success Story 2
Recently valuations have started to come in a little lower than some expectations but let me tell you about an extreme case.
A client purchased a property at auction. Generally when an auction is involved it is standard practice that the valuation matches the sale price because an auction is a great predictor of what is happening in the market at any given moment in time. In addition, prior to purchasing the property the client completed thorough research, spoke to many agents, actually lives and owns multiple properties in the area and had recent sales evidence to back up his sales price.
My client did absolutely everything right.
Unfortunately the valuer did not agree. In fact he did not agree to the extent that the valuation came in $125,000 lower than the sales price. When large disparities like this exist we can often negotiate with the valuer. Unfortunately in this case the valuer would not budge. It sometimes happens.
To get this application over the line I needed a lender that would accept the contract of sale and hence not require a valuation. Secondly, I needed a lender that would accept the income which included large amounts of overtime and rental income (lenders differ as to how much overtime and rental income they are prepared to accept). Thirdly I needed a lender who would accept a trust structure on the title of the property (less lenders are accepting trust structures in the current economic climate). Thorough understanding of multiple lenders policy’s ‘inside out’ is the only way to get such applications approved.
The client was prepared to move forward because they disagreed with the valuer and firmly believe from their considerable knowledge and research in the area that the property is good value for money. At the end of the day the client needed to proceed otherwise they risked losing a deposit of over $50,000 plus costs. It’s my job to ensure the lender also accepts this as the case.
Using considerable negotiation skills (especially getting the assessor to agree with my assessment of acceptable income) I organised a full approval for the client based on the contract of sale price.
This is what we do at Loans Australia – day in day out. Act as your financial advocates for getting finance approved when others might give up. We ensure that the credit assessors get it right and that your application is presented in the best possible light.
So if you or someone you know are experiencing difficulties or frustrations with getting finance approvals please pass on the Loans Australia name. Your referral is the kindest way to say thankyou.
Plan for success!
Stephen McClatchie
Founder and Director
Since the RBA announced its 1% interest rate cut, with lenders generally passing on the .8% to their clients, I have made some startling observations.
If you feel that you have been negatively impacted by lenders who refuse to play ‘fair’ or your worried about how the current or future economic climate may effect you, it is important to review your finances now BEFORE your available options disappear.
In contrast, decreasing interest rates combined with tougher economic conditions, presents new and exciting property opportunities. These opportunities are only going to continue however lenders are literally changing their products and policies on a daily basis. This may make it harder to get approved for finance down the track.
So how does one navigate this confusing and somewhat confronting landscape?
Having a system and a plan for building or maintaining your property portfolio starts to make more sense once you understand that there are different income servicing limits and lending limits imposed by lenders. To make sense of this somewhat complex lending system I have developed the ‘4 Levels of Finance’ to illustrate how you can use different finance options strategically and to your advantage, right now.
The 4 Levels of Finance include Full Document Loans; Low Document Loans; No Document Loans and finally the Ultimate Document Loan. As the number of properties you own increases you need to start getting more strategic with your finance strategy if you want to continually purchase property or access available equity in your property.
So let’s have a look at how you might use these loan types strategically.
With full document loans your verifiable income (payslips, group certificates, tax returns, letter of employment) is used to confirm that you can service the debt and how much you can borrow. Lenders will also take into consideration rental income, share dividends or any other income that can be verifiable.
Of the 4 Levels of Finance, full document loans are the cheapest and it’s at this level that you will find the highest LVRs, most competitive interest rates, largest interest rate discounts and the lowest fees. Lenders love full document loans because this kind of finance poses the lowest form of risk.
For investors who can verify their income the initial strategy is to use full document loans until your income can no longer service additional debt (according to the lender). Once you have maximised your potential under full document loans you will need to move onto Level 2: Low Document Loans.
Low Document loans can be used by self-employed, professional investors, PAYG and contractors who either can’t access the paperwork required for a traditional loan, who don’t want to provide all the paperwork of a traditional loan, or cannot verify their income.
With a low doc loan, instead of providing income verification, you sign a declaration that states your annual income and CONFIRMS your ability to afford the loan. Thats right, you must be able to make the repayments on the loan. The worst thing you can possibly do is take out a loan you cannot afford. You must also note that the tax office is starting to review low document declarations to check if it matches the income declared on tax returns. So you will need to make a note of this should the ATO come knocking.
There are many ways that a low document loan can assist you as an investor. Firstly as your property portfolio increases you become more reliant on your rental income - full document lenders do not always handle large rental incomes to the investors advantage. In addition, you may be receiving income from a source that cannot be clearly verified or accepted for full document approval, eg irregular commissions, lump sums, contractor income etc. Alternatively your Accountant may be minimising your taxable income and as a result your bank will not give you a full document loan. You may even be carrying forward loses or have a large increase or decrease in income compared to the year before. All of these reasons can make it difficult to be approved for a full document loan. The low doc loan allows you to get around these issues.
Whilst it may seem like you can keep borrowing forever with low document loans there are limits to how much you can borrow using this method.
The overall borrowing limits are generally defined by the lenders mortgage insurer. Most Low Document Loans with an LVR over 60% are insured by Lenders Mortgage Insurers (LMI). In fact you may have even started using LMI on your full document loans. Each mortgage insurer places limits on how much they will let you borrow (regardless of your income and assets). Once you reach the limit with that insurer – that’s it.
At present the two main insurers will lend up to $1 million at 80% LVR per property and have a maximum exposure to any one borrower of approximately $2.5 million (they may lump families together even if your borrowings are seperate). One of the main insurers will no longer approve low doc refinances, only purchases, thereby placing even greater restrictions on borrowers in the current market.
Moving forward you will need to use another insurer or a lender who self insures. Eventually you use up the lending limits with each insurer and this is when you move onto No Document Loans.
With No Document loans the lender will rely solely on the asset used as security, rather than a place a reliance on your income. You do not need to declare an income or complete an asset and liability schedule in most cases. Some No Doc lenders will require that you have ABN and GST registration. If you plan on getting to this level of finance – register your ABN and GST now to avoid frustrations later on (please speak to your Accountant first to determine any tax ramifications).
For people with very complex finance / company structures and substantial portfolios No Document loans have major advantages. They are particularly useful if you tend to purchase each individual property in separate companies / trusts as you won’t need to provide reams of paperwork.
No Document loans can be used particularly well by sophisticated investors. Here are some situations where a no document loan can be used to your advantage:
The No Doc LVR will be lower than that of the other finance types (up to 80% - sometimes even 85%) and you will be faced with higher interest rates, fees and charges. However investors at this level will be looking at the profitability of the overall transaction and will be more sophisticated at identifying and negotiating better property deals and creating greater profits. At the end of the day, the fees and charges are simply a cost of doing business.
At this level, lenders look at the ‘deal’ itself rather than assessing your income, assets and liabilities. The Ultimate Doc is most commonly used for small or large developments. As it is impossible to prove serviceability on a personal level the lender will be looking at the potential profits and income derived from the development itself. The lender may require a certain number of ‘pre-sales’ before the development finance will be approved hence providing a level of certainty on the amount of debt that will left once the development is complete.
As you move through the 4 Levels of Finance you will find benefits and annoyances at every stage. The key is to have a plan.
In these changing economic times consider planning for any of the following:
Complete our Fast Loan Enquiry Form Today and Loans Australia will assist you through any of these issues.
Plan for success,
Stephen McClatchie
Founder and Director
Loans Australia
P.S.
When I create a lending structure for clients I am not simply thinking about the current purchase/refinance but also future purchasing / refinancing requirements. It’s the ony way to ensure a client can continue to move forward on their terms - rather than the lenders.
If you have a proprety financing need that we can assist you with right now, give us a call on 1300 855 430 or contact us and I’ll personally make sure you get the help you need.
If you are a low document or no document applicant it is critical that you read the following update.
Its turbulent times in the financial markets and with the lack of funding, lenders are preferring to lend their available money out to lower risk applicants. Over the last 8 months lenders have consistently tightened their credit criteria and are making it harder for people to borrow money.
So how does this affect you, a low / no document self employed or professional investor applicant?
No Document Lending
URGENT: New ‘No Document’ Lending Criteria changes as of October 20, 2008. From October 20th all new Investor Loans Finance Applications must declare an income and cashout is resticted to a maximum of $200,000. If you want to benefit from current no document policy where you DO NOT need to declare an income you need to lodge your finance application prior to October 20th, 2008.
Loans Australia has access to the most competitive No Document loans on the market. Take a look at our Investor Loans Product to see for yourself how it compares to other No Document loans.
What we do want to impress upon you is that the lending policy on this product will change from October 20th 2008.
So if you are thinking about accessing some equity from one of your properties to take advantage of some of the great property deals going around, or just want to setup a buffer now in case the market gets worse, don’t delay in getting your refinances completed now.
Low Document Lending
There are two major lending mortgage insurance companies currently in Australia, being PMI and Genworth. Both of these companies are USA based and have been hit hard by the USA housing and mortgage crisis, even leading to their credit rating being downgraded.
The flow on effect to the Australian market has been swift and dramatic.
PMI have now changed their lending policy substantially and will no longer approve any low document loans where the purpose is to refinance. They continue however to approve purchases.
The exception to this rule is where a lender has a DUA “Delegated Underwriting Authority” which allows the lender to approve loans without having to go to the Mortgage Insurer for final approval. The trick is knowing which lender has the DUA. With this kind of ‘insider’ knowledge, Loans Australia is able to gain approvals which might otherwise be declined.
The other major insurer, Genworth have also changed their lending guidelines, with new lending guidelines coming into effect from the 20th of October 2008.
This information is critical for you as a low document applicant because all major lenders must have mortgage insurance on their loans where the LVR is over 60%. The cost of the mortgage insurance will be passed onto the borrower although in some cases it can be added onto the loan up to a maximum of 82%.
Non-bank lenders who provide access to low document loans have also tightened up their lending criteria and have pulled back their LVR’s from 95% to 90%. That’s if they still remain in the market. Many non-bank low document lenders have pulled out of the market during the funding crisis without giving any indication of when they will be back.
The last remaining low document and no document lenders are tightening up their policies as the USA financial markets continue to flounder. So if you are on the sidelines – get in quick before the opportunity passes you by.
Make an enquiry online to discuss your remaining options or phone Loans Australia on 1300 855 430.
Plan for success!
Stephen McClatchie
Exponential Finance Strategist
www.LoansAustralia.com.au
P.S.
Low and No Document lenders continue to change their policies every week. If you are sitting on the fence and considering your financing options you need to take action – before more of these products are pulled off the market.
Make an enquiry to discuss your remaining options or phone Loans Australia on 1300 855 430.
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With continued turbulence in the share market it makes sense to have a plan in place. Do you cash in what’s left of your shares or should you wait it out? Or, is the current turmoil a massive opportunity for picking up some great deals?
Adrian Shaw, a Financial Planner with the Harridge Group has provided financial advice to a broad range of clients including Senior Partners of Deloitte, the Head of an International Funds Management Group and a number of high profile CEOs, corporate managers and business owners. Adrian understands what a minefield this area is.
To assist you in getting a handle on the big picture (and as a result move away from the daily newspapers doom and gloom mentality) Adrian has put together the following article to give people a long term perspective in the face of a volatile sharemarket.
For further clarification about your own specific financial planning needs whether it be long term planning, retirement planning, regular investment and estate planning please call Adrian on 1300 651 564 or check out www.harridgegroup.com.au
When you have a long term investment strategy, short term market movements should be expected and should not concern you because history demonstrates that sharemarkets recover after crashes & downturns. It is important to sit tight and ‘ride out’ the market volatility.
We have compared two of history’s greatest sharemarket crashes to demonstrate that despite the event that follow, the sharemarket recovers and continued to grow (despite the short-term pain felt be investors).
During the 1929 Stockmarket crash, the Dow Jones Industrial Average (DJIA), a common indicator of market performance, fell by 13% on 28th October 1929, which at the time was a record fall.
Almost 60 years later, on the 19th October 1987, the stockmarket incurred another famous crash, where the DJIA fell by a record 22.6% in a single day.
Arguably, the 1929 and 1987 stockmarket crashes are two of history’s greatest. However they had significantly different outcomes…
Following the 1929 Stockmarket Crash, the world was driven into “The Great Depression” because interest rates were increased. It was believed that easy access to borrowed monies was the cause of the stockmarket crash and the solution was to increase interest rates. Unfortunately the rate increase slowed the economy and triggered a chain of events that drove the world into “The Great Depression”, arguably the worst financial disaster in history.
In contrast, following the 1987 crash, interest rates were decreased in an attempt to provide liquidity to relieve “turbulence and tension in the wake of the financial market upheaval”. Additionally, the U.S. Federal Reserve issued a short statement before the market opened the next day on 20th October 1987:
“The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system”
The approach taken following the 1987 crash demonstrates that the financial sector is now better equipped
to manage a market down turn and consequently facilitate a more rapid recovery.
| 1929 Stock Market Crash | 1987 Stock Market Crash |
| Dow Jones Industrial Average ↓13% on ‘Black Monday’ ↑Interest Rates (to slow the economy) Recovered to Pre – Crash level in 25 years |
Dow Jones Industrial Average ↓22.6% on ‘Black Monday’ ↓Interest Rates (to stimulate the economy) Recovered to Pre – Crash level in 3 years |
Having a clearly defined Long Term investment strategy is vital to a successful investment portfolio and outcome. Understanding your goals will help you build your Long Term strategy and select the most appropriate investment assets to achieve them.
As investments vary in both risk and return characteristics, you will need to understand your goals and match your investments to these goals.
Short term strategies should incorporate investments with low volatility. Generally your money will need to be accessible at short notice and therefore should not be exposed to the risk of frequent capital movements (ie you may be forced to sell an investment when it is undervalued, resulting in a loss).
Longer term investments (like property and shares, known as growth assets) can accept greater volatility because they are not required in the short term and can therefore ride out the short term ups and downs. Additionally growth assets offer the potential for greater returns, which is compensation for the exposure to short term market movements.
When investing, it is important to consider the risks associated with those investments. Remember, higher returns generally come with higher risk – so be realistic…
The market has always experienced periods of volatility and will continue to do so. The recent falls in the stockmarket highlight the opportunities that currently exist to enter the market by acquiring quality assets at a discount price. It is important to note that there will always be events occurring in the world that make it seem like a “bad time” to invest… however to achieve long term growth, you will at some point need to enter the market.
The chart below represents the long term growth of the Australian sharemarket between 1900 – March 2008. It highlights significant historical events during the period and the relevant stockmarket value. We can see that the market recovers and continues to grow despite the occurrence of significant historical events.
For those with a long term strategy… Sit back and relax… The market will go up & down and down & up… When the market does fall it may be a good time to invest more monies.
For those that don’t have a long term strategy or are unsure when to invest, generally a stockmarket fall represents a discount sale of quality assets, due to the tendency of markets to panic and lose sight of the long-term real value of investments. The key to building long-term wealth is to ignore short-term market noise, seize opportunities and focus on your long-term strategic plan designed to achieve your objectives.
Adrian Shaw, an experienced Financial Planner was commissioned by the Financial Planning Association of Australia to develop an education program entitled ‘The Value of Advice’. His areas of expertise include Wealth Accumulation Strategies; Self Managed Superannuation; Superannuation Planning; Estate Planning and Risk Insurances. If you would like to speak to Adrian for specific advice on your own situation please call 1300 651 564 or checkout The Harridge Group.
Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.
Adrian Shaw & The Harridge Group Pty Ltd are Authorised Representatives of Godfrey Pembroke Ltd Australian Financial Services Licence No: 230690 an Australian Financial Services Licensee, Registered Office at 105 - 153 Miller Street, North Sydney NSW 2060.
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In property investment, there are eight rules which you have to follow - these are known as the eight “must nots.” If you keep these rules in mind, plan ahead and put in some hard work, you’ll become successful in property investing. These rules are simple; you don’t need seminars to get information, don’t assume anything, don’t go it alone, don’t become attached to property, don’t cut yourself short, don’t limit yourself, don’t ignore the numbers and don’t forget to be practical. Let’s have a closer look at these rules.
Rule Number One: Do Not Rely on Seminars for Wise Investments
Attend what you want to, but ignore the hype. Seminars are a great way to increase your knowledge about this lucrative market, but don’t rely on the speaker to give you the real facts. You can, however, learn some great strategies and prepare for unknown factors when investing. The speaker is simply presenting their point of view, you need to come up with your own.
Ask yourself exactly what you stand to gain by going to this seminar. Then, ask yourself what exactly the speaker gets out of it: why are they pushing this particular area of property investment? Look into it and determine if there is money to be made or if your time and money would be better spent elsewhere. Before you invest anything, know all of the facts.
Rule Number Two: Do Not Cut Yourself Short
Factor in all the costs of an investment and make sure than you can really afford it. Leave room for unknown costs (they have a way of cropping up). Compare locations and the costs of different properties and evaluate whether it will be cost effective for you to buy them; remember that there may be repairs needed - factor in the time needed too. You’ll also have to be prepared to pay for insurance, inspections of various types, adjustment expenses, valuations, depreciation, mortgage insurance, real estate broker’s fees, taxes, utilities and any other costs you may incur while you own this property. Don’t rely on others for this information - do your own research. Don’t count on income from rents to cover these costs either; be certain that you can pay for all of this without that income.
Rule Number Three: Do Not Assume Anything
Never ever assume anything. Rather than guess, find out the facts. As an investor, you need to know everything in order to make a wise decision about whether or not to invest in a given property. This is not a game of overnight wealth. While you can indeed get rich with property investment, it does take time, dedication and a lot of hard work on your part. You have to know all of the facts at every step in the process. Asking price, calculated return and how much money you’ll have to spend on the property before you can resell it for a profit. You need to know how much rent you’ll receive and how the tenants are before you proceed.
Rule Number Four: Do Not Ignore the Numbers
Watch your numbers. Do not borrow more than you can afford. Remember, this property needs to make you money, it’s not where you will be living. Think of it as an employee. So the more debt you have the more interest you pay. So you must be able to afford to pay the mortgage regardless if you receive rent or not. Watching your overall cash-flow is definitely important. Remember to be prepared for the unknowns.
Rule Number Five: Do Not Become Attached
Don’t get attached to the property you are buying. Look at the numbers and let them be your guide. You need to think of the house the way potential buyers or renters would. You’re not going to live there - so rather than thinking of it as your home, think of it as any other commodity; you want to sell it as quickly as you can. Think about the purchase price and how much you will make by selling or renting the property.
Rule Number Six: Do Not Do It Alone
Don’t go it alone; at least not at first anyway. You cannot be everything when becoming a true property investor. Learn the ropes form experts in the field. It may seem like the right idea to save money, but if you don’t seek out professional help for all those steps involved in turning properties for profit, you will wind up losing money in the end. To do things right you will need a property advocate, mortgage broker, property assessor, inspector, and an accountant. It is also a wise idea to get a contractor whom you can trust to make some repairs that may come up from time to time. Be frugal, but no penny pinching allowed.
Rule Number Seven: Do Not Forget Practicality
Think first about the practicality of your investment property. For instance, a home is ideal if located near frequently visited places, such as, schools, city transportation, stores, gas stations, and other modern conveniences. Secondly, remember to think quality, not quantity. What is the quality of the neighborhood like, what are the schools like, and how safe is the area? Then think about what type of disaster zone the house may be in, could there be issues with floods, tornadoes, earthquakes or other natural disasters? The age of the home and neighbourhood also needs to be taken into consideration. How new is the electrical and plumbing, how well insulated is it, and how is it heated or cooled? These issues are big with buyers, renters, and insurance agents.
Rule Number Eight: Do Not Limit Yourself
Don’t stop at one property. The more properties you have in your portfolio, the easier it will become. Each time, you’ll learn, which makes the next investment easier. You’ll also start to understand the market trends and be better prepared to take advantage of them.
Why Seek Help?
Having a good mortgage broker behind you can make all the difference. If you are turned down for financing by banks, look for a creative financing expert; they may be able to find other financing routes for you. Investing in property takes dedication and hard work, along with the willingness to lean from others. With the right financier behind you and all of your research in place, you can make smart and profitable investments.
If you have a proprety financing need that we can assist you with right now, give us a call on 1300 855 430 or contact us and I’ll personally make sure you get the help you need.
Plan for Success!
Stephen McClatchie
Exponential Finance Strategist
www.LoansAustralia.com.au
Welcome to the first in a series of video presentations designed to impart some of the expertise I’ve developed over the last 13 years in Property Finance.
Here’s the first video with some absolutely key information if you want to avoid having your credit rating ruined without even knowing (these are genuine surprises - not just common sense stuff that gets republished in every property investment magazine, but important secrets that the majority of investors aren’t aware of).
There is an enormous number of mistakes that many investors and home buyers make when trying to finance their properties, and on the other side of the coin, if you use the right strategies and avoid these costly blunders, you can end up with a MUCH healthier portfolio.
Stay tuned for part 2, and if you have a proprety financing need that we can assist you with right now, give us a call on 1300 855 430 or contact us and I’ll personally make sure you get the help you need.
Plan for Success!
Stephen McClatchie
Exponential Finance Strategist
www.LoansAustralia.com.au
Australian property finance company Loans Australia are pleased to announce the launch of this property finance Blog.
Over the coming weeks and months we will deliver information about the Australian property finance market.
Contact us now for more information on property finance.
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