A Mortgage Broker answers our money questions

This week we interviewed Patrick Gregory from Gregory Finance around some common questions we get from a getting finance point of view.

There is gold in here, so make sure you read it through carefully.

What would you say are the top two reasons buyers should be coming to you instead of going through the big 4 banks?

Greater choice and better service.

First, we start with over 30 lenders so with us you have access to the most appropriate options available in the market based on thorough discussions around your situation & requirements. Second, we tailor our service to your schedule and preferences whether that means more flexible meeting times or video calls. This client-focussed approach is backed by 13 years of banking and finance experience

When you ask clients to supply documents to apply for their home loan.. what do you ask for? And how can people use their quieter time right now to get these documents ready for you?

At a minimum we will ask for three months of transaction statements, your last two payslips (or two years of financials if self-employed) and ID. People can use this time to check that their ID hasn’t expired (e.g. valid licence or passport) and gather details of their complete financial situation including income, assets and liabilities.

Regarding these documents, how can people get themselves into a better position in the eyes of the banks (ie cut up cc/cut out uber eats - or does this not matter anymore)?

It’s important to be realistic about your spending. We have good conversations with people about what their living expenses are now (supported by analysis of their bank statements) and are likely to be in the future. Any one-off or out of the ordinary expenses can be accounted for with reasonable explanations.

If you have plans to cut down on spending to afford home loan repayments, we recommend a 3-6 month period living at this new level before applying for a loan. We don’t think any good comes from taking on a 30-year loan commitment with repayments that won’t allow you to live the lifestyle you want.

Also, things are a little different at the moment - we're finding some people are spending less than usual as there isn't a great deal to do in Melbourne! On the other hand, some have sharpened their online shopping skills and are on a first-name basis with their local Australia Post delivery driver! Again, we help clients identify this.

In summary, we think clients are better off having an experienced broker (Gregory Finance) work through this with them, help them select the right level of debt and present a strong case to the right lender based on whatever their situation is, living expenses or otherwise. 

A credit card – even if it isn’t used – impacts your borrowing capacity. We can apply with a commitment to close that credit card before unconditional approval, so speak to us first about what your options are here.

Finally, remember all credit providers now share your repayment activity with credit reporting agencies (including Afterpay). We can help you access and interpret free credit reports, so you get a better understanding of the potential impacts on your loan application.

A lot of buyers think you need a 20% deposit plus stamp duty to get into the market.. this is ideal, but its not a necessity. How much would you say is the bare minimum a first home buyer needs to purchase a property?

We advise first home buyers to save a deposit of at least 5-10% of the purchase price in most situations, though this can be reduced through stamp duty concessions, grants and access to guarantor loans (e.g. equity in a parent's property). Generally, loans over 80% LVR (Loan to Value Ratio) also attract Lender’s Mortgage Insurance (LMI). We can help you devise a plan to get you where you need to be with support via regular check-ins if it involves a saving period.

How does the first home buyer deposit scheme work? And do buyers need to get their pre-approval first or buy a property first before they apply?

Pre-approval first! The First Home Loan Deposit Scheme (FHLDS) involves the government guaranteeing loans between 80-95% LVR, avoiding the need for LMI to be paid for first-home buyers (up to $600k purchase price in Melbourne metro). It's a great option for first-home buyers given the challenge saving for a deposit can present. That said, all allocations under the scheme are used up for this financial year.

If parents are going to give their children some money to help their buy their home, what do they need to supply and can they get this done now, or should it all be done closer to the property purchase?

Where funds have been received in the last 90-120 days and appear on bank statements most lenders will want something in writing confirming the gift is non-refundable. Once you choose the lender, we work within their guidelines which is usually a form or stat dec.

How do you feel about all the loan calculators that are available online these days?

The accuracy of online loan calculators varies significantly and can potentially take away their value as a useful tool because borrowing capacities differ by lender. We draw out the relevant numbers to provide accurate borrowing capacity calculations so clients know exactly where they stand.

QUICK FIRE ROUND

Fixed or variable?

Fixed rates are cheaper with most lenders at the moment, and there are some incredible historically low fixed rates available. In saying that there are limitations in terms of additional repayments, break costs, availability of offset & redraw. It therefore it makes sense to do some forward planning to understand what your cashflow will be like in coming years and then optimise your structure - which we do with clients.

20% deposit and wait to buy or 5% + LMI and get in now?

If clients feel they've bought well and expect capital growth, the cost of LMI rather than waiting can stack up. As mentioned before, saving 20% + stamp duty can be a big ask. The individual’s life situation also plays a part in the decision eg Do mortgage repayments replace replace renting? But any cost needs to be carefully considered. So it really does depend on the individual situation! 

Interest only and avocado toast or principal + interest all the way?

The most common reasons given for Interest Only repayments are tax implications either now or in the future so we would direct a client to their accountant to confirm the approach before setting up an Interest-Only loan. Avocado toast ok for both.

Bridging finance yay or nay?

Yay – sometimes. It can work in certain cases but can often be quite restrictive in terms of borrowing capacity. Important to bear in mind that bridging finance has a finite term of 3-6 months for people to have not only sold but have settled on the sale of their ‘old home’ which can put pressure on clients. Whilst there are 1-2 lenders that offer bridging finance terms up to 12 months, it is really important our clients set a realistic sale price and that they consider their “Plan B” which might involve discounting the Sale Price or pulling the property off the market and converting it to a “Rental” for the next 6-12 months. We always factor “Plan B” into our assessment and recommendations to clients

We want to thank Patrick so much for his time answering all our questions which we come across time and time again from our clients. If you have any additional questions for Patrick he can be found on 0411 956 688.

Tabitha Robb