How USA Citizens Can Get Mortgages In Australia

American couple buying and Australian propertyUnited States (US) citizens often look to Australia when searching for property. The country is highly sort after, not only as a holiday destination, but as a place to work, and even a place to migrate permanently. American investors also currently enjoy the relative stability the mortgage industry here provides, especially relative to much of the US.

What is the Australian mortgage industry like?

Some US property buyers, when new to the Australian market, may be in for a surprise. Regulation means that it can be far more difficult, not only to borrow larger sums, but to receive approval at all. As the Australian economy is in better shape, interest rates are also far greater than their US counterparts. This is not cause for concern however, if you buy in areas where growth and rental income outweigh the interest repayments.

Another major factor for Australian mortgages is the relatively high cost of property in general. As housing is fairly scarce, in major cities the prices and availability can be initially high. However, with the right mortgage at competitive rates, your repayments should be fairly affordable. Therefore, in most cases this will not be a problem, especially for investors who are likely to sell well before their loan matures.

What is the buying process like?

For most foreign citizens and temporary residents, including those from the United States, the process is fairly similar. First of all, Australian Government approval is needed. The Foreign Investment Review Board (FIRB) governs all foreign investment within Australia, including property and real estate.

Those that do not have property in mind often visit the country to see for themselves, even investors. However a buyer’s agent can do the work for you if you do not have time, or will not be in Australia.

When applying for the loan itself, documentation is needed. Your income and proof of identity are obviously important, and you must also declare any debts you have within Australia. If you have borrowed within Australia before you will have an Australian credit file . Make sure this has no negatives. It is ok if it does. It just means banks will be more careful with you as they will view you as higher risk.

If you have debt in countries other than Australia, you do not have to worry about declaring it. However, please make sure you are aware of the risks associated, and that you can afford to service both them AND a loan in Australia.

You can take your documentation to a lender, or you can apply through a mortgage broker. It is advisable to go through a mortgage broker, unless you have a great offer from your lender. Brokers usually work with many different financial institutions, increasing your chance of approval, and of receiving a more affordable loan. This is because a specific lender will only ever offer you its own products.

If you receive an offer, normally foreign citizens are able to borrow up to 70% or 80% of the property value (80% LVR). In the US this is known as LTV, or the loan-to-value ratio. Borrowing over 80% LVR means you will need to pay lenders mortgage insurance (LMI), to protect the bank if you default on any repayments. Over 80% of home loans in Australia are with a variable interest rate, similar to the ARM (adjustable rate mortgage) in the US.

What if we are moving to Australia?

For American citizens who would like to live and work in Australia, they would usually apply for a type of temporary resident mortgage. To apply for a working visa in Australia, the immigration application process has changed.

The government has set up a service called SkillSelect, which determines visa eligibility based upon you employment skills, and what jobs are in high demand in Australia. The most popular visa type is the 457 temporary (long stay) business visa. To find out more about the program follow the link above.

Australian banks and lenders are willing to accept many different types of visa when assessing mortgage applications.

Contractors Can Obtain Fair Mortgages

Contractor with his familyMortgages were initially created so that people with jobs would be able to buy a higher priced item like a home, since generally a home costs three to four times a person’s annual income. Unfortunately, those who are self-employed, such as contractors, don’t have what is deemed a “normal” job since they don’t get paid a fixed rate and don’t have the promise of an employer paying them a steady income.

The irony to this is that often contractors make two to three times more as self-employed workers than workers who work for a fixed rate, but because of this view of the self-employed, obtaining a mortgage can be difficult for contractors. Lenders typically view these workers as having a higher potential for defaulting on a loan due to the possibility of not receiving enough work and or losing their business all together.

Contractors have very few rights when it comes to unemployment, so if a period of unemployment is experienced, it can cause extreme financial difficulty and options are limited. Because contractors are often viewed as unstable borrowers, mortgage lenders usually don’t want to work with contractors.

There are some lenders though that are willing to provide finance for contractors, and there are now many that specialise in loans that are especially for self-employed workers including contractors. These specialised loans are specifically designed to fit around a contractor’s financing needs, and it simply just takes a bit of research to find these lenders. The products offered are typically designed with larger room for flexibility, giving contractors the chance to pay more on their loan when they receive a very well paying contract, as well as offering the option to use a payment holiday in order to extend payments if the contractors experience periods of unemployment.

Contractors may also want to look into obtaining a loan from a mortgage broker. Mortgage brokers are a good resource because they are specifically trained to look at a variety of mortgage products available within the mortgage market. Additionally, they are familiar with what questions they need to ask a prospective borrower in order to verify income and assess stability. This allows the mortgage brokers to find products that are best suited for the potential borrower’s needs, and take the time to evaluate the contractor’s entire financial information, including the worker’s employment history and credit file.

A major concern for people that are “outside of the box” is if they can borrow over 80% of the value of their property. This is because over this amount, approval from a Lenders Mortgage Insurer (LMI) may be required. If you apply with the right lender then this problem can be avoided as they can sign off the approval on behalf of the mortgage insurer, using their own lending policy.

When contractors use these options, having this room for flexibility can be extremely useful for them to obtain a contractor mortgage. Flexibility is one of the most important factors for any contractor who is seeking a mortgage, as they don’t have the typical secured income sources that others have. The flexibility to take a repayment holiday during unemployment or to overpay when extra income is received are perfect options for the income of contractors.

Using the overpayment option is an extremely attractive offer and should be used as often as possible. Doing this also gives the contractor a higher chance of being approved for extended payment holidays should a period of unemployment ever be experienced. Using this option also helps save on interest, and the amount of interest that is saved can prove to be a great investment. First of all, it becomes free of taxation. Secondly, if one were to overpay on their mortgage instead of putting it into a savings account for example, the interest savings on the principle loan amount is higher than the interest accrued in the savings account. Of course, it’s always a good idea to take some money and put it away just in case a financial emergency arises and then the contractor’s mortgage has a redraw facility or an offset account for their mortgage.

Searching for mortgage lenders and brokers who specialise in working with self-employed workers like contractors are easy to find with just a bit of research. Often these professionals advertise in industry or trade magazines, or a contractor can network with other contractors in the business to find out if anyone they know has a recommendation.

Just because one is self-employed and doesn’t have the stereo-typical income that other workers have doesn’t mean that they should be penalized. Often self-employed workers not only are denied for loans, they are also presented with large interest fees and punitive fees when they do receive a mortgage. In addition, they sometimes get offered self-certified mortgages, which are full of those outlandish interest fees and more.

As a self-employed contractor, don’t lose hope in procuring a mortgage. There are options out there and as more and more people find ways to become self-employed, the financing options for the self-employed will only continue to increase.

Australian Expats Mortgage

Are you an Australian Citizen living overseas?

Did you know that Aussie Expats are able to apply for a mortgage in Australia?

Australians living in the UKTraditionally, this has never been a simple process, and can be downright confusing due to lenders policy restrictions such as: document translation issues, verifying employment and work history, type of deposit saved and your foreign credit history – just to name a few!

No wonder Australian expats are often confused when it comes to finding a mortgage in Australia! However thanks to specialised Mortgage Brokers such as The Home Loan Experts, obtaining a home loan for Australians living offshore has never been easier. You can find out more about Australian Expat Mortgages on their website.

How much can I borrow?

If you are an Australian expat living and working abroad you may have been told by financial institutions that your loan amount will be limited to 80% of the property value. This is quite simply – not true!

If you apply with a lender that regularly works with non-residents, then you may actually be able to borrow up to 95% of the property value. This means that you will not have to exhaust your existing capital, and you can receive substantial tax benefits due to negative gearing.

In addition to this, some lenders will give you the same discounted interest rates as if you still were living in Australia!

How can I prove what I earn?

If you live in a country such as the United Kingdom (UK), Ireland, Europe, United States of America (USA), Dubai, Canada, Singapore, New Zealand, South East Asia and China we can verify your income in a various number of ways. Other countries are assessed on a case by case basis, with lenders favouring countries with joint tax agreements with the Australian Government.

If your tax returns and pay slips are in English, then these will be accepted in Australia. If they are in a foreign language, the documents may need to be translated by the consulate in your country – however, many lenders have credit assessors who have translators in-house, so this may not be a concern.

Some lenders will even consider accepting a letter from your employer as confirmation of your employment!
As you can see, every lender looks at your documents and application in a completely different way, this is why it is so important that you choose a lender that has requirements to match your situation. This way you will avoid unnecessary delays in getting your mortgage approved.

The most common mistake people make is to just apply with a bank without knowing their policy for non-resident borrowers.

Can the bank take foreign property as security?

No, Australian lenders will only take Australian properties as security. If you have a property in Australia or are buying a property in Australia then this is not a problem.

However, if you are trying to apply for a loan to buy a property in another country and you are using that property as security for the mortgage, then it is best to apply for your loan in that country. You can apply for an Australian loan to release equity from your Australian property to be used as your deposit for a foreign property.

What do I do from here?

Australian Expats living miles from home are of the assumption that it is a painful process applying for a home loan in Australia. However thanks to advances in technology, it is now easy to apply for your mortgage from a foreign country.

A specialist mortgage broker such as The Home Loan Experts will be able to assist you with your entire home loan application, from start to finish, with minimal hassle. Please refer to their Australian Expatriates page for more information.

Lenders Mortgage Insurance

The Biggest Fee For Your Home Mortgage

Calculating LMI PremiumPeople who have not been affected by the housing market crisis in Australia may now be looking for the opportunity to purchase a home. Because of the global market downturn, property values and home prices have dropped throughout the world.

This means that there are big gains to be had for those people who can afford to purchase a home. However, when you find your home, there are a few things you should remember before jumping in to a mortgage head first. There are a few fees that are associated with your mortgage other than the monthly payment. For those who have a small deposit and need to borrow money from a lending institution, he or she will most likely have to pay lender’s mortgage insurance.

What is Lender’s Mortgage Insurance?

Lender’s mortgage insurance, or LMI for short, is a fee charged by the lender of funds in home loans. This fee is used to help protect the lender’s interest in the loan. For instance, if you have borrowed $200K and could not end up affording that amount, you would default on the loan.

The lending institution would not only be losing the actual loan itself, but all associated costs for originating and closing the loan. Therefore, borrowers are charged an upfront fee to help off-set any costs associated with a loan in default.

Do I Need It?

The answer is both yes and no. For those individuals who can afford a certain down payment on their loan, usually over 20%, he or she does not always have to pay an LMI premium. LMI is based upon one’s risk assessment for loan repayment. For example, those who only have a minimum down payment, possibly 3%, are considered high risk because he or she has not been able to save a significant portion of money for their purchase.

Oppositely, those who have a large down payment available and a solid job history may get the LMI fee waived. This is up to the discretion of the lending institution. Also, one should keep in mind that LMI insurance does not cover the borrower (home owner). This insurance is paid by the home owner as a requirement by the lender. Some loans that may require LMI would be:

- Property Investment Mortgages
- Construction Mortgages
- Owner/Occupier Mortgages

Please note that if you are making interest only repayments then some mortgage insurers will load your premium. As your loan will not be reducing over the term, there is a higher risk to the insurer and so a higher premium is charged.

What is the Cost of LMI?

When a lender starts to talk about fees, many home owners get a nauseous feeling in their stomach. One of the most feared sounds is that of the calculator adding document fees, attorney fees, LMI fees, and all other costs associated with loan approval that makes the ribbon on the adding machine sing.

However, LMI does not carry the unpredictability as other fees because it has been government regulated. LMI fees depend on the amount of the home loan, how much money was put down, and the length of the loan itself.

One of the leading providers in Australia for LMI is Genworth Financial. Genworth Financial can provide its customers with the purchase of LMI and help with the many other aspects of home mortgages. You cannot choose if your lender uses Genworth LMI or QBE LMI, however you can apply with a lender that uses these particular insurers, thus ensuring you get the lowest possible premium.

Discounts for doctors: special rates on home loans

Are you a doctor, accountant or lawyer? Have you finally found that dream home that you want to finance? Applying for a home loan can often be complicated process with multiple requirements. Most individuals that are able to secure the loan end up with high fixed interest rates that make paying off the loan amount exceedingly difficult.

However, if you’re a professional some of the conditions for approval may not be applicable and the requirements are often relaxed by lenders. Further, you may be eligible for discounted interest rates.

The right mortgage broker can help you to apply with the most suitable lender possible, to ensure that you receive the best package around!

If you work in the medical industry or practice as a doctor, dentist, physiotherapist, radiologist, osteopath, psychiatrists or other, you may be eligible for the Medico Package Discount. However, not all professions are included, so it is advised that you check with the banks first.

Being a medical professional means that your employment is stable and you have a high earning potential. Consequently, the banks view you as being low risk and are more willing to lend, in addition to offering attractive loan packages for those that choose to take up a loan with that particular lending institution.

Doctors are particularly favoured by lenders, due to their high income and statistically the profession with the lowest default rate, no matter if they are employed through a government hospital, if they are in private practise of if they are a specialist. Accordingly, they are able to manage their finances and often later apply to the banks for additional sums to finance other investment purchases. Thus banks view medical professionals as important and valued clients.

Fitting into this category means that the Lenders Mortgage Insurance applicable when securing the loan, may not be payable. Further, you may automatically be able to receive a sizeable discount of 0.7% below the Standard Variable Rate (SVR) of the bank! This adds up to savings of thousands of dollars!

To make sure that you satisfy all criteria to receive these discounts, its best to apply with the right mortgage broker. Generally, you must not be borrowing above 80% of the LVR and the amount you are borrowing must be over $500,000. Larger amounts will receive more generous discounts.
When applying for this package, it is also essential that you have a clear credit history. There may be other criteria that you need to satisfy, so it is always best that you check with your lender first.

However, the most important thing is that you contact the right broker. Regardless of the strict guidelines or the low amount that you may be borrowing, your broker may know of special rates that you may be eligible for as a professional. To ensure that you receive the best package around, ask your mortgage broker about home loans for doctors!

Display home designs

Female designers viewing a home being builtThe first place to start when building a home is by viewing some existing homes and looking at the way they are designed. What do you like? What don’t you like? Get a feel for what kind of design you need and in particular, what catches your imagination.

By viewing some display homes you can then get a feel for what modern options are available. They are usually found in new estates or in areas of new land releases where there will be construction of new homes by developers. The display home is an example of what can be built in this area and is in place to give prospective buyers an actual feel of what is available.

A display village is like a new car dealership for homes, and has for viewing all the types of houses that can be built for varying land sizes, needs & budgets. This allows you to actually walk through what can be built rather than try to imagine a house from looking at drawings and architectural plans. So if you have vacant land already and want to do some research a display is a good start to have a real feel of what you are going to live in.

What should you look out for with your display home?

Remember a display home is marketing tool by the builder, so when walking through one it may seem like the perfect place for you to live in, but you must ask a few questions and make sure that the home is suited to what you require. Try to keep in mind the following:

  • The initial price is the basic building cost without the added extras. So always be prepared to pay more than what is originally quoted as curtains, tiles etc is not part of the basic package.
  • Does the floor plan fit my family requirements?
  • The house I am picking how it will fit on the land and how it will look?
  • Bathrooms & toilets are there enough? Is there too many?
  • Sunlight in the morning or afternoon? Where are the windows? Which way is North / South?
  • Think about landscaping, driveway, fencing, tiles, kitchen, air conditioning.
  • Basic floor plans are not expensive but changes to any floor plans incur costs so look at as many floor plans and find the one that is best suited to you.
  • Flipping the house plan meaning changing the whole arranging by 180 degrees will incur a cost.

When looking at display homes always have additional funds for a rainy day. Nine times out of ten some unexpected further costs pop up, unless you are prepared you could get into a very messy financial situation. Make sure that everything is documented with the builder, make sure that you are happy with the layout and can imagine every room you are walking through. If you get the design right then you will have plenty of equity from day one!

There will be many stories of buildings gone wrong regarding display homes, but when there are thousands of homes built each year, there are always going to be a few disaster stories and this can be due to the client not being on top of things or sheer bad luck. As a consumer you will have a lot of protection from any issues that can arise with constructing your home there are building commissions in each state which will have information to assist you and protect you.

We recommend that you get quotes from 2 – 3 builders before choosing the one that will work for you. Ask them for a list of past customers that you can call and find out how punctual the builder was, if the price changed & how well they cleaned up after the job was done.

Good luck with your dream home!

About the Author

Otto is a Mortgage Broker that has specialised in financing display home loans via the major banks for over 7 years. His company the Home Loan Experts is now one of the top home loan broking firms in Australia.

Calculating your equity

Equity scaleHow much equity do you have? Your home could be a hidden gold mine of equity, ready to be turned into cash for you to spend! The amount of equity you have really depends on the the value of your home & how much you owe to the bank. The difference is your equity.

Calculating your equity

Don’t worry it is easier than it looks! The formula is:

House value – Loan amount = Equity

So lets say that your home is worth $500,000 and you owe the bank $300,000 then the formula looks like this:

$500,000 – $300,000 = $200,000 in Equity

As a general rule if you draw down on equity such that you owe over 80% of the value of your home, then you may need to pay Lenders Mortgage Insurance (see below). Many home equity loans are restricted to be a maximum of 90% of the property value.

The difficult bit…

The difficult part is working out just how much your house is really worth. Real Estate Agents often give you an overinflated estimate of the value of your home. This is because then it is more likely that you may ask them to list the property for sale through them. There is so much media hype about prices going up and down it it actually quite hard to find out an accurate measure for the value for your home.

If you would like to know more about working out the value of your home for yourself then read this article on how to value a property.

Lenders Mortgage Insurance (LMI)

Lenders Mortgage Insurance is insurance that protects the lender in the event that you can’t repay your home loan. Lenders take out this insurance if your equity loan is for more than 80% LTV. The LMI premium charged is paid by you, the borrower, not the lender!

This can end up to be much more expensive than people think! If you are thinking of accessing your equity then use this Lenders Mortgage Insurance calculator to find out what your premium will be. Make sure you shop around! Different banks have different premiums, and they only rarely tell the general public what they are.

Mortgage education

If you’re looking to buy a home soon, then you’ll begin to notice all the advertisements from banks and hear your friends talk about mortgages. With such a bewildering range of features, lenders & options it’s easy to get confused! Getting advice from a friend is great if you are wondering what movie to see, but it isn’t appropriate for a mortgage.

Seeking help from a professional advisor is always the best way to go. However what if you want a second opinion. Many of us don’t have the financial muscle to see several financial planners & get a statement of adivce from all of them.

But don’t worry, there are several ways you can get advice, without the price tag!

  • Try asking a question on a home loan forum, an expert or professional investor may reply to your post with a unique perspective.
  • Read some mortgage articles from an industry insider or specialist journalist.
  • Read a mortgage blog for handy tips on managing your loan.

If you still aren’t sure if your mortgage advisor is acting in your best interests, then ask them some questions to find out what expertise they have and why they are recommending that mortgage:

  • Why do you believe that loan is superior to the others?
  • Can you give me a copy of your commission schedule?
  • Do you have accreditations with all of the prime lenders?
  • How long have you been a mortgage broker for?
  • What other experience do you have in the finance industry?

If all else fails then consider seeking the advice of a second mortgage broker. Unlike financial planners, most mortgage brokers allow you to visit them the first time for free. This is because they are paid when you take out a home loan, it is in their interests to see as many people as they can!

Happy mortgage hunting!

Equity Loan Policy

Have you got the best possible interest rate on your equity loan? That’s great, but it isn’t going to do you any good if your application is declined! Before you apply for a loan, take the time to learn what the banks are looking for and present your application to the right lender in the right way.

Firstly, many banks simply are not interest in equity loans. They don’t have the appetite for this type of business. In particular many lenders do not like to consolidate multiple unsecured debts. They know from past experience that this type of application is a much higher risk, and so typically if there are more than three debts being rolled into one then they will decline the application.

There are specialist lenders that actively seek people who are consolidating debt. Typically they will want their borrowers to have a lower LTV ratio (also known as the LVR). Ideally your loan should have an LVR of less than 80%, that means that your mortgage is no more than 80% of the valuation of your house. The better your repayment history then the better your rate & the better your chances of approval. You must have real estate that you own as security for an equity loan.

The loan purpose is the other main area that catches people out. What are you releasing the money for? Did you know that each lender has their own opinion as to what is a low risk loan purpose & what is a high risk? As a general rule the higher risk loans types are for consolidating tax debt, going on holidays, “unknown or undisclosed” purposes or business ventures. Low risks are refinancing to get a better interest rate, investing in shares and buying an investment property.

There are a range of other lender guidelines that can catch you out if you aren’t careful. Most lenders have guidelines requiring the following:

  • Minimum time in your job, usually six months.
  • Minimum asset position, usually dependent on your age.
  • Minimum serviceability ratio, you must be able to afford the loan even if rates increase.
  • Minimum credit history / credit score.
  • Acceptable security as collateral for the loan.

Use the advice of a good mortgage broker such as Dargan Financial to help you choose a lender that you qualify with and to negotiate the lowest interest rate for your equity mortgage. Navigating the minefield of bank policies is impossible for someone who is outside of the industry, it is essential that you seek professional advice.

Equity Shares Definition: Property Investment

Couple with part ownership in an equity shareThis term can be involved with shares and with real estate. Here we will be looking at equity sharing and property, not with shares.

Investors and occupiers basically share ownership of a property. They each contribute to the down payment, with the home appreciation, or ‘equity’, being shared between the parties on sale of the property.

The title deed to an equity share property defines the relationship of every owner to every other owner. If there are couples involved this can mean several relationships need to be stated on the one deed.

Australian expats and other non-residents often go into an equity share arrangement whilst they remain overseas. As it is sometimes more difficult for them to borrow as much of the property value, or to receive the same low interest rates as Australian citizens. This arrangement can make investing in Australian properties easier and more affordable.

When the property is purchased the parties decide on Ownership percentages. They normally determine this based on the contributions of the buying costs, also called the initial capital contributions. As an example, the investor could own 60% of the property and the occupiers could own 40%.

At the end of the term determined by the equity sharing contract, the investor or the occupier could become sole owners by buying out the % share of the property they do not own. With no buyout, the profit would be distributed 60/40 on the sale of the property.

There are two types of costs associated with equity sharing. Initial capital contributions as mentioned above, and additional capital contributions. These are reimbursed before profits are allocated and shared in any way the owners decide.

Property tax and insurance are not necessarily included as contributions as they are not part of the purchase costs, but may be considered prepayments of owning the property. If needed remember to factor in lenders mortgage insurance too.

Initial capital contributions include the purchase costs of owning the property such as the deposit, bank fees and inspection fees. Additional capital contributions include additions to the property that do not depreciate such as new bathrooms, kitchens and carpets. Other costs, including mortgage payments, property taxes, insurance and routine maintenance, are not shared. They are just paid by the occupier.

Tenants in common is the most popular way for unrelated people to create an equity share as it protects each party from seizure of their interests by creditors of the other owner. It also means in the event of the death of an owner(s), their interest does not automatically pass to the other party. If the deceased has a will it will pass to whoever is mentioned, if not it will do whatever is provided by law.

Joint tenancy is another way to own property. In the event of death the equity share will pass to the remaining owner, and not go by their will. As the transfer needs no will or court involvement, this is the most popular way for related people to sign up for an equity share.