Buying a home is difficult. Buying a home when someone is very young is all-the-more challenging. Young professionals may be able to pay the instalments of the mortgage but saving enough to make the down payment is an uphill task. When one is in their twenties or even early thirties living in the city or when expenses are reasonably higher due to various experiences that the young usually indulge in, it becomes difficult to set aside the money needed to buy a house.

The down payment is the biggest financial challenge. The second challenge is qualifying for the mortgage. There are many lenders with varying rates, the eligibility criteria would be a hurdle and the homebuyer needs to manage their finances well so they can keep making timely payments without impairing their lifestyle. Your credit history will also play a pivotal role in the mortgage preapproval and approval process.

If you are planning to buy a house, you could get your parents or a family member to make some contribution in myriad ways. You may want them to pay a part of the down payment. You may even get them have a cash gift that takes care of the entire down payment. Parents often use the equity of their large home, a second property or an unused block of land to fund the down payment of their grownup child’s home. Families could contribute whatever amount of money they can afford and whatever would be useful for your mortgage.

Another effective way to help your child is to become the guarantor. It is quite possible that your child would fall short of the credit score requirements by just a score of points or a dozen odd points. He or she may fall short by a hundred points. The income and disposable part of the income, which is considered by the banks or mortgage lenders while processing home loan applications, may not be sufficient. There can be other red flags which would become the reason for rejection. Instead of having your child’s mortgage application turned down or some criterion playing spoilsport, you can chip in as the guarantor.

Parents or family members can become your guarantor as well. Having a guarantor will increase your chances of qualifying for mortgage and almost assure you a fair deal. Shortfall in credit score will not be a deterrent. The lender will not impose high fees or unreasonable rates of interest. You would not only qualify for the mortgage but also get approved sooner and would also get a good deal, including the loan to value ratio and the rate of interest.

Home loans or mortgages are designed to help any and every homebuyer, provided they meet specific prerequisites. From credit score to income, the loan to value ratio or the down payment to the type of employment or business one has, everything will be under consideration while determining eligibility. From employed and self-employed professionals, business owners and independent contractors or freelancers. The concept of the home loan doesn’t differentiate on the basis of the type of employment. However, the eligibility factors or the criteria for approval would vary.

There is no alternative to home loan or mortgage if you wish to buy a property, unless it is a commercial property in which case you can use a business or corporate loan. For self-employed professionals, the exact criteria will vary from one bank to another but the eligibility factors will be different from that of employed professionals.

• You would need your tax returns and financial statements. The purpose is to show how much in taxes you have been paying, confirming your income. The financial statements are assessed to deem financial eligibility, whether or not you can afford the instalment or the mortgage. There are various online home loan calculators that you can use to deem eligibility and how much you can comfortably afford towards a mortgage. For self-employed professionals, the approach to calculate dependents and other financial commitments is similar to that of employed people. However, some stringency is expected as self-employed professionals don’t have the financial security of employed professionals. Self-employed professionals may incur losses and may not earn anything in a given month or quarter.
• Self-employed professionals must have been in their present business or profession for at least twelve consecutive months. The longer one has been in the profession, continuously, the better. Depending on the nature of self-employment, there should be GST paid for the same period of time that one has been in the specific line of work. The GST statements would be crucial. Bank account statements would also need to be furnished.
• The income, the GST paid, the taxes paid and filed for, business activity and the amount of money one can comfortably spare will determine the loan amount. Usually, self-employed professionals can borrow up to 80% of the sale price of the home but various factors will influence the final loan to value ratio.

Mortgage is the biggest financial commitment for most people around the world. Unless you are an investor or run a midsize to large business, you are unlikely to make any investment that is dearer than your mortgage.

While it is not considered to be a risky investment, there are risks associated with it. You would be making a down payment, which could be all your savings or a major chunk of it. You would be committing to repaying the mortgage, every month for fifteen, twenty, twenty-five or perhaps thirty years. That could be seen as a lifelong commitment. You can always walk out of the mortgage and that would mean you would be moving out of your home. That is why you should try to mitigate mortgage risk as much as you can.

• Never buy a property that is too costly for you. Many homebuyers think that they can manage to pay a mortgage that is 30% or more of their income, they think that they can cut corners and in any case their incomes would rise in the near or foreseeable future and that the amount paid as instalments wouldn’t pinch as much. Such approaches are unwise. Purchase a home that you can afford comfortably. If you do very well in the future and amass substantial wealth, you can always buy a much better or costlier home.
• Do not consider the exact mortgage payments as what you owe to the lender. While that would be the amount you pay for now, it may increase or decrease. Should the repayments reduce due to a cut in rates of interest, then you don’t need to worry. But what if the rates go up and you have to pay 5% or perhaps as much as 10% higher than what you pay right now? You must factor this in and see to it that your incomes conveniently allow for such a surge in financial liabilities.
• Repaying mortgage can become a daunting challenge and almost impossible if you lose your job, if you have a serious medical emergency in the family or if you are unable to work and earn a living. You can consider payment protection insurance; you can consider tenants in your home or you can have some other plan that would keep repaying your mortgage or settle it at once.

 

Speak to your YFG lending specialist to guide you along in calculating the best mortgage repayment amount for you based on your specific income and expenses.

 

 

Stress is defined as a state of mental or emotional strain or tension resulting from adverse or demanding circumstances.

Mortgage stress is defined as a state of mental or emotional strain or tension resulting from the onus of paying a mortgage, or instalments, that are higher than 30% of the total family income.

You can do the math and see if your mortgage consumes more than or let’s say one-third of your total family income. However, there are exemptions. High net worth individuals who aren’t really under any financial stress and whose two-third incomes would be a fortune don’t really fall into this classification. For others, the average families with ordinary homes, mortgage stress is a reality.

How do you know that you are experiencing mortgage stress?

The math alone would not be sufficient. It is very possible that despite paying more than 30% of your income towards your mortgage, you would be doing fine. It is also possible that paying 25% of your income towards your mortgage can get you severely stressed. What it boils down to eventually are the symptoms. What stresses you may not stress someone else.

Let us consider some realities.

Are you consistently thinking of the mortgage you pay? Are you perennially under duress that you have to pay the instalment? Are you compromising on a whole lot of things, perhaps including some humble purchases to continue paying your mortgage? If any of these realities are a part of your life, then you are experiencing mortgage stress.

The reason why 20% to 30% of income is considered the threshold while approving mortgages is the belief of experts over the decades that such an amount can be conveniently put aside and paid by an individual or family. What is not accounted for in such calculations are fluctuations, personal obligations or liabilities that emerge after evaluation the mortgage application when there may not be any debts or astounding financial dependence and many such possible circumstances that can squeeze every cent of the remaining income of an individual or family.

From medical problems to a growing family, professional troubles to untoward developments at home, there can be numerous factors contributing to mortgage stress. Homeowners should consider strategizing their finances to avert mortgage stress. Homebuyers should do the math properly before signing up for a mortgage which can lead to unnecessary and undesirable stress.

The mortgage industry is unlikely to work in favour of individual homebuyers or families that own homes. It is eventually upon every individual to make the right choices.

 

As always, we recommend speaking with your YFG lending specialist when determining the right amount for you to be spending on your mortgage – They are the experts after all!

 

Investing in a property or real estate in general can be very rewarding but without proper homework and the guidance and advice from your YFG lending specialist - it can be a huge disappointment.

It all boils down to how much money you would eventually make to justify the investment. Also, should you choose to use an investment property as a rental or for other purposes to make money then you need to factor in the convenience of running such a venture.

As is the case with any investment or in any business, first timers would be prone to make a few mistakes that veterans wouldn’t. It is not that veterans in a niche don’t make mistakes but amateurs are more vulnerable.

To help you in your quest, here are the common mistakes first timers make while investing in a property. (But as a beginner in property investment, we suggest that you always speak to your YFG lending specialist who can guide you along!)

• Nothing but the math matters. You may be tempted to invest in a property because you have fallen in love with it, you may be encouraged by people you know and you may even be driven by what others are doing or you may want to be in the same league. Nothing can be as disastrous if the numbers don’t make sense. The quantum of investment, the financial obligations to turn things around and the eventual returns are the most important realities; everything else is secondary.
• The only emotion that matters are of the tenants, tourists or homebuyers, whoever you are targeting. Your emotions don’t matter at all. Since you would be investing in the property and not staying in it. Don’t judge it from the perspective of your preferences. Don’t presume that tenants, tourists or homebuyers would like what you are fond of. Take a very pragmatic view and question yourself if the property would attend to the convenience, senses and financial jurisprudence of the tenants, tourists or homebuyers.
• Don’t buy the hoopla about skyrocketing property appreciation. Don’t buy the archaic sales pitch that properties will always be subjected to appreciation. The value of your property will only increase reasonably, unless you have purchased a piece of real estate close to the boulevard in Vegas before it existed or in Atlantic City as it was being conceptualized. Only in such cases the property prices would shoot through the roof and perhaps hit the moon. In every other case, there would be substantial property depreciation and that would eat away a part of appreciation or inflation.
• The down payment or the upfront costs are not the only investment, neither is the total cost of the property. There will be additional costs, from fees for the various professionals involved in the deal to decking up the property and marketing it later to generate the returns.

A rising market, also known as a seller’s market, is a scenario in the real estate industry where the prices of properties are being subjected to steady or sudden appreciation. With rising property prices, sellers have a field day as they can pick-and-choose the asking prices and then negotiate on their own terms. The buyers usually have a tough task because not much is in their favor.

A rising market is eventually rewarding for buyers because they get to get into when there is an upswing and they would immediately witness some appreciation of the property they buy.

Since the market is tilted in favour of sellers, buyers need to be cautious. Here are some tips for buying in a rising or high demand market.

• First, you need to find a good property. Not one that appears to be good or one that seems to have a fair price but one that actually is a good buy on paper and in reality. Location, price comparison, the nitty-gritty of the property and the timing of the deal vis-à-vis the prospects in the area, everything that matters in a deal during a normal scenario would also apply in a rising market. Get professional valuations, weigh in the pros and cons of the property, do some math to anticipate the appreciation after you purchase and assess the property in regards to the purpose you have in mind.
• You should negotiate the price but for that you have to make an initial offer. Always take the initiative to make an offer. In a rising market, the seller will get multiple offers and if you are too late then you wouldn’t even get the chance to negotiate. Be the first mover and take the plunge. You can always back out. Entering the realm of a deal is not secured forever in a rising market.
• When you are in a deal alone, you wouldn’t have much leverage by your side. Many people, including independent investors and companies, will be able to make similar offers and may be willing to pay a bit more. Consider syndicate purchases. When plenty of property buyers or investors come together for a massive deal, then the seller has less room to ask for more. The sheer volume and financial aspect of the deal allows the syndicate to have the leverage.
• You can participate in auctions or private sales but always ensure that you avoid being emotional while taking the final call. Don’t get carried away, against the math to offer a pricier quote.

 

Looking for the perfect loan to finance your perfect property? - Be sure to contact your YFG lending specialist for expert and professional advise and assistance.

When you make the decision to purchase your first home, there is a lot that you will need to accomplish. Perhaps one of the most challenging things will be the part in which you work to obtain the 20% of your loan that so many lenders require for your deposit.

Let’s imagine you want to purchase a home that’s 700, 000 (and in Australia, that’s close to rare). When you consider the prospect of making 20% of that, it’s easy to see why some people simply give up the dream of home ownership.

Don’t give up by any means. Learn more about the options that are currently available to you, one of which includes Lenders Mortgage Insurance (also known as LMI).

What You Need To Obtain LMI

Lenders Mortgage Insurance involves working with a lender who is willing to let you borrow a higher proportion of your purchase price. This will give you the opportunity to purchase your property with a deposit that might be smaller than what you would have had to pay under normal circumstances. The lender is going to be the insured party, which is definitely something that you will want to keep in mind. Lenders Mortgage Insurance is designed to provide the lender with the protection they require.

One of the most interesting aspects about Lenders Mortgage Insurance is the way it is very different from a traditional insurance product in one key way. This would be the costs that are going to be expected of you. Unlike other types of insurance products, your one-off premium is the only thing that you will need to really worry about in terms of costs.

There are a number of factors that play a role in how Lenders Mortgage Insurance is calculated. You will also find that there are online calculators you can take advantage of, providing you with a fairly strong indication of what you stand to gain. Some of the factors that may influence your LMI quote are your loan purpose, the borrower type, or the security type.

Once you have been approved, you will have your broker/lender prepare all of the relevant information and documentation. At the same time, they will also provide you with advice as it relates to whether or not your loan even needs an LMI in the first place.

In certain situations, you’ll want to be aware that at least part of your premium can be potentially paid back. This applies to those who repay their loans in 2-years-or-less.

Need help navigating this sort of financial territory? Your YFG lending specialist is there to help you find the best lending solution for you!

As a first-time home buyer, you may find yourself a little overwhelmed by the types of loans that are available to you. In part 4 of our series on types of home loans, we’ll cover some of the possibilities that first-time home buyers tend to miss.

If you feel as though honeymoon loans, low doc loans, or construction loans are not giving you the terms you require, then you’ll want to learn more about some of your alternatives. As you are going to discover, there are a variety of possibilities out there.

Other common loan types

Here are a few of the other loan types you should take the time to research in greater detail:

• Bridging loans: The concept of bridging finance simply means securing the funds you need to cover the inevitable gap that exists between having to pay for your new property, and receiving the money you’ve made from the property you’ve just sold. The lender will likely take security over both properties.
• Line of credit/equity line: Some people like to compare having a line of credit/equity line to having a huge, seemingly limitless cheque book. There is a very small sliver of truth to that, but it’s important to keep a few elements to this option in mind. For one thing, it’s not free money. You will have to remember that interest is going to continue to accrue on the balance. Furthermore, you can spend your approved limit all at once, or a piece-at-a-time. One of the nice things about this option is the fact that just because you have a certain amount in your line of credit, that doesn’t mean you have to actually spend all of it. At the same time, understand that you will not have to pay the interest on the money you don’t spend.
• Reverse mortgages: Chances are; you’ve seen one or two commercials that are advertising reverse mortgages. This option is designed to appeal to retirees who would like to use the equity that is currently built up in their homes to supplement whatever they are drawing from their retirement. The money is generally paid through instalments, although some lenders will give you the option to have it given to you as a lump sum. However, the terms of the loan can wind up providing a potential beneficiary with an unpleasant surprise, when it comes to inheritance later on.

 

This should give you a basic overview of these types of home loans. But remember, the Specialist lending consultants at YFG lending are there to guide you through the process.

In part 3 of our series on home loan types, we’re going to take a long look at low doc loans. More to the point, we believe that it is well worth investigating not only the particulars of these loans, but why they have made a return to our markets.

There are some unique advantages to these loans. However, by the same token, there are also some drawbacks that you’ll want to keep in mind.

What are home low doc loans?

A home Low doc loan is designed to appeal to self-employed individuals, in addition to those who own a small business. In particular, home doc loans can be particularly useful to those who are financially self-sufficient, but who perhaps do not have the financial information that is generally expected of those who seek a home loan. What does this mean exactly? Well it’s all in the name! The “low doc” name for low doc loans actually refers to low documentation, meaning the applicant will be held to a different documentation standard than those seeking more traditional loans.

Over the past few years, low doc loans have become extremely popular with individuals throughout Australia. Industry figures suggest that these loans are currently taking up approximately ten percent of all the mortgage loans that are currently being written.

It is not difficult to understand why these loans are so popular. For one thing, an increasing number of people are turning to career paths that are difficult to document in the ways associated with more mainstream career choices.

You will want to keep in mind that these loans tend to have higher deposit demands. Furthermore, you can also expect to have to deal with higher interest rates than the current average. These elements will be due to the fact that those seeking home doc loans are generally unable to provide the same degree of security to the lender, as those seeking the more mainstream loan options.

There are a few other conditions with low doc loans that you should try to keep in mind:

• You must be able to prove that you have been self-employed in a particular industry for at least 1 year. Your ABN or Certificate of Incorporation might be required.
• You will need to present the lender with your Business Activity Statements for the past twelve consecutive months. These must be verified through the ATO.
• 80% of the property value is the maximum amount that can be borrowed.
• You must confirm your income has been GST registered for at least 12 months.

 

In the second part of our series on home loans, we’re going to take a look at construction loans.

You’re going to find that there are many avenues in which these loans are available to people just like you. However, as is the case with any other type of loan, you’re going to want to be aware of the particulars.

For example, before any credible lender will grant you a construction loan, you’re going to want to satisfy a few issues beforehand. Step 1 is that you’re definitely going to want to make sure you have a builder committed to your project.

What is a construction loan?

As the name might suggest to you, a construction loan is designed exclusively for those who are planning to build a house. A construction loan breaks down into fairly simple terms.

Once you have purchased land, you’re going to do your research to find a contractor or construction company. After choosing your contractor/construction company, everyone will work to not only create a clear idea of what is going to be built, but how long it is going to take to complete the project.

Armed with blueprints and a time frame, your next step will be to contact a lender for the construction loan.

In some circumstances, a lender will be willing to extend the construction loan to assist in the purchase of the land in question. However, you will still want to bring a contractor, blueprints, and a time frame to any consultation you may have. The lender will want to have complete confidence in what you are proposing to do.

Keep in mind that this loan is strictly temporary. They work when variable loans are drawn down to make sure your contractor is paid in stages. In other words, you are allocating small sums of money that will continue to pop up, over the course of the life of the construction project. One of the nice elements to this loan type is the fact that the contractor is not going to be paid for work they haven’t done. This is a smart way to protect the borrower from assuming any financial losses through the construction timeframe.

In terms of repaying the loan, you’ll want to note that this loan is interest-only, payable on the loan amounts that have been drawn upon.

On completion of the construction project, the loan will switch over to a permanent principal and interest sort of mortgage. These are just the basics and we always advise you to seek the expertise of a YFG Lending Specialist consultant.