getting a loan
How to get the bank to say yes more than once?
This is fine if the person wants to continue having properties with the one lender. It becomes a risk to the borrower if they expose themselves to a bank for more than 1 property. 3-4 properties would be the limit if an investor was to do this as lenders then become reluctant to continue exposing themselves to the borrower and it becomes very risky for the borrower as they would be exposing too many properties to the lender.
It is wise to use a mortgage broker as they can compare many choices that one bank cannot offer you. Be aware though that some brokers will only use the big 4 banks and 1 or 2 other banks. This is bad. These brokers are not true brokers for many reasons in my opinion, one reason is that they typically do not offer loan choices other than what a person can obtain from a bank branch themselves. A true broker is not a quasi-agent for a bank, they compare loans and offers with a range of choices from non-banks and banks.
Many brokers are incentivized by the banks by being given a different status than other brokers, which could lead to the broker getting paid more, this may mean the clients best interests are not being looked after.
Servicing is another element the lender focuses on when deciding if they want to continue saying yes to the applicant for another purpose. The borrowing capacity varies between lenders as does lending policy and types of income that are acceptable as well as the percentage of those incomes.
Applicants themselves do silly things such as shop around for the best rate, making enquiries, signing a privacy statement and inadvertently degrading the quality of their own Credit History. Each time a person shops around, a credit hit on their credit history may be generated making it less palatable for a lender to want to deal with that borrower.
I deal with good and poor brokers every week, I can assist in pointing you in the right direction.
Best ways to structure your loans so you can continue borrowing.
Some lenders service existing debt at existing rate which means the servicing calculator can work in an investors favour if they have other property debts.
Some calculators do not take into account deductable interest which leads to a negative impact on servicing. Speak to a good broker who actually compares products from non-banks as well as banks as already suggested. A borrowing capacity can differ by many hundreds of thousands. I personally recently compared two lenders, a bank and a non-bank. The non-bank would allow the individual to borrow 600,000 more than the bank.
Self-employed borrowers often prefer to avoid tax rather than to increase their taxable income on paper. This leads them to try and get a low documentation or alternative documentation loan and whilst these loans serve a purpose they can be more expensive which in turn reduces ones borrowing capacity moving forward, as well as increases the repayments on the loan. So if a borrower is more willing to provide their tax returns and those tax returns show enough income, they then could be eligible for a better rate making it easier to potentially borrow more for the next investment purchase.
Avoid cross collateralising your loans and not expose yourself to the one lender more than you really need to.
Consider avoiding LMI, this can assist in avoiding credit scoring. Credit scoring is an automated way some lenders and certainly the Mortgage Insurers commence an assessment on you as a borrower and if you have too much exposure to low doc loans or LMI insured loans your score can end up being lower which could inhibit you borrowing more money. A number of non-banks do not credit score though, even up to 95%.
Should you avoid LMI or use it?
If using LMI, how to do it safely? Using or avoiding LMI can be determined by the amount of equity a person has available.
Using LMI increases the loan to value ratio on the investment property and reduces the amount of equity from another property that would otherwise be required to complete the purchase.
Cost of stamp duty may have a bearing on the need to use LMI, as a person’s cash or equity may only be enough to complete the purchase but may not be enough for stamp duty as well, so this could possibly lead to needing to borrow more against the investment property, therefore, LMI providers can be necessary and useful.
Postcodes can be a determining factor in whether a lender wants to lend in a particular area. Some lenders have internal sign off with LMI policy so this can be overcome, some lender can avoid LMI.
LMI providers do ‘credit score’ which can put the loan at risk of not being approved. Banks typically also credit score, so again be careful which Mortgage Broker you are using, as a lazy or poor Broker can lead to your loan being declined, by the fact that broker submitted your loan to the wrong lender. Again, it is often easy and better to use a broker rather than going straight to a bank but be careful. If you want a list of good brokers then contact me.
LMI serve a purpose but at a cost. The cost can range, and can end up being in the 10’s of thousands. If you have not done your research this can unnecessarily eat into your capital /capital gain. Bearing in mind as well, it can eat into your cash flow, as you not only pay this insurance but you also end up paying interest on this insurance amount if you borrow it on top of the loan or within the loan.
An LMI approved deal can allow you to borrow up to 95% against an investment property, but with recent changes, the LMI can no longer be added (capitalized) to the loan above 95% on an investment property. Non LMI loans to 95% are also available in the market place.
If you are wanting to look at ways of dealing with LMI insurers safely per say then please ensure you deal with the right broker, one that either has excellent knowledge of LMI policy or one that has easy and good communication with a relationship manager of a lender. In my experience non-bank relationship managers provide an excellent service to brokers and their rates and policy can often be better and more flexible.
What are the steps you need to take so you don’t have to refinance each time you want to buy a property?
Set up a Redraw facility, so you have the equity available ready for the next opportunity. Lenders are not really your friend, they are a business out to make money and the less you have to deal with them for each purchase the easier you can invest and quicker you can act on an opportunity. You would then be more in control of what you want to do.