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.