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Owner Occupied Loan

Owner-occupied home loans are available for borrowers who plan to borrow money to buy a property to live in. Those wanting to take out an owner-occupied home loan may want to purchase an existing home, build a brand-new property (land & construction), or renovate an established one.

When borrowing for owner-occupied property, you can borrow up to 95% inclusive of LMI. There are few banks who can lend up to 98% inclusive LMI but the higher interest rate will apply.

Genuine savings is essential as most lenders will want to see that you are able to save consistently and will usually require your last three to six months saving history prior to considering you for a loan.

First homeowners’ grants are offered by every state and territory government. These are cash grants available to buyers who have never purchased a home before. There are some stamp duty discount or exemptions available too, which can save you a lot of money.

Before purchasing a property, it is always important to get an idea of how much you need to borrow. How much you can borrow will depend on several factors including i.e. your income, eligibility for Homeowner Grant, what deposit is required, other loan repayments and commitments.

Sitting down with our trusted lending specialist will ensure you know which options are available to you.

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Investment Loan

It is a home loan taken out to purchase or renovate a property purely for investment purposes. Buyer will not live in this property and the sole purpose of this property is to rent it out or retain it for purposes of capital growth and building equity.

Generally, Investment loan interest rates are higher as compared to owner occupied loans. For example, a variable interest home loan for an owner-occupier might be available at 2.69 per cent but for investment mortgages, the interest rate for a comparable loan might be 3.29 per cent or more depending on if you chose to pay principal & interest or interest only repayments.

You also need to put forward a bigger deposit for an investment home loan, as most lenders restrict their maximum lending at 90% inclusive of LMI and with such lenders approx.12 per cent deposit is minimum requirement.

Most banks will use 70% to 80% of your rental income in the assessment and they will use negative gearing into account too when doing serviceability calculation.

Investment loans are generally a higher risk than standard home loans and tends to be a greater chance of default. Hence, you need to be in a strong financial position to qualify.

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Family Pledge Loan

Family pledge or family guarantee home loans allow you to utilise a family member’s home as security for your home loan meaning that you don’t need a huge deposit. It is a loan that allows the shortfall in your deposit to be secured by a family member’s property. It allows family members to assist you without giving you cash or putting cash in and only offering security guarantee. To give an example the family members property might be utilised to guarantee just 20% of the new loan and the property being purchased would be used as security for the other 80% of the loan. Either way the bank feels more comfortable as with this type of loan they have protection if first home buyers can’t make repayments or default on their loan.

For the first home buyers it means they can purchase a home, avoid the added cost of mortgage insurance and even be able to borrow more if for example, the property requires renovations. The family member needs to guarantee a minimum of 20% of the purchase price of the new property if the first homeowners do not have a deposit.

With this type of loan first homeowners can buy either a home to live in or investment property.

The other great news is that even if the loan is a family pledge/guarantee loan that the first homeowners are still eligible for a First Homeowners Grant in their State (if applicable) if buying property to live in.

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SMSF Loan

An SMSF loan is a home loan used by a self-managed super fund (SMSF) to buy residential or commercial investment property. The returns on the investment – whether that’s rental income or capital gains – are funnelled back into the super fund, increasing your retirement savings.

However, SMSF lending is complex and borrowers will need to ensure they have a qualified Accountant, qualified Financial Planner and a Lending Professional who understands SMSF loans and their requirements.

It is also important for buyers to note that Loan to Valuation Ratio are lower on SMSFs – usually only up to a maximum of 70%. Interest rates apply for SMSF Lending are lot higher than normal investment loan. Buyers need to have a minimum of $200,000 in Superannuation fund balance to be eligible to set up an SMSF and they will require assistance from a qualified accountant and financial planner.

Generally, banks will look at the current income of the trust based on its previous two years tax returns and will then assess if that income plus the proposed rental income will be sufficient to service the debt.

There are few transactions prevented in SMSF i.e. construction loans, buying a residential property where fund member or any related parties intend to live in, renting a residential property to fund member or any related parties. If your SMSF purchases a commercial premise, it can be leased to a fund member for their business. However, it must be leased at the market rate and follow specific rules

SMSF Lending can be a fantastic way of preparing for your financial future but having the right team of professionals is essential to help buyers understand the process and pave the way for a smooth transaction.

Consult your Lending specialist for more information about SMSF loans.

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Low Doc Loan

Low-documentation or low-doc loans are for people – generally the self-employed – who have difficulty getting the documentation together that is required to get a traditional home loan.

Traditionally, the interest rate offered on these types of loans was higher than for the standard variable rate. While lenders have various methods of establishing whether they will lend someone money, there are some major differences between mainstream and low-doc loans.

Low-doc loans do not require traditional proof of income such as company financials or tax returns. These loans typically suit self-employed people or full-time investors who may have difficulty showing a high level of income, as a result of either writing off a number of expenses, reinvesting profits into a business, or being slow in lodging their tax returns.

The main documents that can be used to verify your income are:

  • 12 months’ BAS statements showing a high turnover.
  • Accountant’s letter verifying your income.
  • 6 to 12 months Business bank statements showing a high turnover.

Always check with your broker if you would like to make any variations to your building contract, prior to proceeding. Upon completion of the dwelling, the construction loan will revert to the loan product originally chosen by you.

On completion of construction, you will need to obtain an Occupation Certificate, also known as an Occupation Permit, from your local council.

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No LMI Loan for professionals

One of the hardest parts of securing a home loan is saving the 20% deposit required by Australian lenders. Fortunately, medical professionals, lawyers and accountants are

eligible for an LMI waiver from the major banks and most smaller lenders, meaning that they can borrow up to 90% of the property value in metropolitan areas with no requirement to purchase Lenders’ Mortgage Insurance (LMI).

This is a great opportunity for these professionals to break into the home loan or property investment market and save tens of thousands of dollars on LMI costs.

The LMI fee pays for an insurance policy that covers the bank for losses they incur if the borrower cannot repay their mortgage.

Some lenders offer LMI waivers to borrowers who are employed within specific professions. As this offer is extremely lucrative, there are tight restrictions on the eligibility for the waiver. Generally, you must:

  • Have a clean credit history
  • Be employed as a lawyer, accountant or “preferred medical professional”, such as a doctor in any specialty, dentist, physiotherapist, chiropractor or select others.
  • Show a history of stable employment in your field
  • Be a member of an industry association that is acceptable to the lender (for example, the AMA for medical professionals)

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Construction Loan

Construction Loans can be quite different to a standard home loan, so it is important to understand what you are entering into.

Maximum percentage you can borrow is up to 95% of the value of the property including cost of Lenders Mortgage Insurance. Many Lenders also offer interest only repayments during the construction process which revert to principle and interest repayments once the construction is complete.

To qualify for a Construction Loan, you will need to have council approved plans and a fixed price tender from a registered builder. You should also note that you will need to use your saved funds or equity before drawing down on your Construction Loan.The Construction loan is drawn down in stages (Base, Frame, Outer brick work, Lock up stage & practical completion) as your property is being built. This means that your monthly mortgage repayments slowly increase as the construction moves forward until finally at completion of construction the loan repayment reaches its full monthly repayment amount.

Always check with your broker if you would like to make any variations to your building contract, prior to proceeding. Upon completion of the dwelling, the construction loan will revert to the loan product originally chosen by you.

On completion of construction, you will need to obtain an Occupation Certificate, also known as an Occupation Permit, from your local council.

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Development Finance

Development finance is mainly for larger development for example commercial building, property development building apartments, land development etc.

Development finance typically operates as an interest-only, draw-down facility and the term of the loan would typically be 6 to 24 months, depending on the size and nature of the project. Usually the interest on a development loan is capitalised within the development period, with the entire loan inclusive of interest charged being repaid upon the sale of the property. Usually the interest can be rolled up into the loan, so there are no monthly payments.

Generally, lenders will lend you up to 60% to 70% of GRV (gross realisation value) and look for minimum 20% of profit margin.

Lender would also like to see following things before investing in any development funding.

  • Feasibility report
  • Location and type of the proposed development
  • What profit returns can project earn (minimum 20% profit margin)

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Commercial Loan

It is a type of loan which is taken by business or an individual for business purpose. The sole reason of loan is to fund commercial operation to develop business and expansion.

Different kind of commercial loans available are business overdraft facility, chattel mortgage, equipment & leasing finance, line of credit, business term loan, commercial property loan.

Commercial loans are commonly used to purchase or refinance existing commercial property. It involves paying GST which is 10% of property value and increase cost of purchase. When purchasing commercial property, lenders generally require 70%-80% deposit depending on the value of property.

When compared to residential lending, Income verification is less strict due to lesser legislative restrictions. Income verification can be done as

  • Full doc where you provide 2 years tax returns and financial statements
  • Low doc where you only need to supply BAS or letter from accountants or business bank statements
  • Some lenders can also use the forecasted financials which will include your P & L and expected future growth

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