Choosing Mortgage Lenders

Written by Investment-Mortgages on July 16, 2010 — Leave a Comment

The Method of Choosing a Mortgage Lender

Technically a Mortgage lender is an institution which provides loans to people to purchase real estate. These institutions could be banks, credit unions, life insurance companies, trust companies that provides finance for buying land, houses and real estate. There could be thousands of mortgage lenders in your area varying from small local banks to large corporate houses which finance real estate across the nation.

Basics of a Mortgage Lender

Mortgage lenders could be associated with private banks which guarantee real estate debts like the ANZ and Westpac. As a buyer you need to find the company which gives the loan for the least interest rates and fees. The mortgage finance industry is largely based on commissions and potential customers can compare the terms and other facts with the Internet quotes. The basic difference between a broker and the lender is a broker works on a shoe string budget and there are less overhead costs as compared to a lender like a bank which would have to invest a larger sum for overhead expenses. Mortgage broker is in business to facilitate transactions, which means that they never lend money but get you a suitable lender who will provide the finance. Such brokers have access to a variety of lenders who lend for different situations. The final arbitrator is you who will decide which is the best choice for you. Some companies and financial institutions double as brokers and lenders. It is important that you know exactly who you are dealing with because if it is a broker he will be paid on the basis of commission on the full loan amount.

Loan Offer

An offer made by the lender is not always the final word and there is sometimes space for negotiation. Most Mortgage lenders keep a percentage for themselves above their usual cut for generating a loan. Therefore who knows an a particular day the lender can offer different proposals to two persons with identical qualifications. But it is not unprofitable to tip the broker since he can save a lot of money by asking the lender to waive off extra fees and costs. Remember it is never bad to ask a lender for some waivers!

Another question is how to find the most suitable Mortgage lender? You can surf the net and compare the offers from different lenders. Suppose you want to finance your home. It is going to be the biggest investment in your life and it is very important to find the best mortgage lender catering to your needs. Mortgage lending terms are similar in most cases and the variations are made to satisfy the peculiarities of the situation. Brokers(given they generate enough turnover) have access to many great loans and products to offer you, where as a bank or lending institution have only their own which may not always suit your needs.

Always get a second opinion and ensure you get the best deal!

This article was contributed by Samantha Taylor who the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. She is specialised in writing on “Mortgage Lenders” and on other mortgage related articles.”

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Steps to Buying Property

Written by Investment-Mortgages on May 19, 2010 — Leave a Comment

Steps to Buying Your Next Property

1- Make the decision to buy. Buy doing this you have set a new goal!!

2- Get finance approved. -This is a crucial step, and usually neglected until the last minute when you have found a home to buy. Find out what your purchasing power is and how it ties in with your budget. Do you need to buy cash flow positive, neutral or a negative geared property?

3- Find an area and start researching the homes for sale. Or alternatively start researching great growth areas this will find you an area. This will be one of the most time consuming steps of all, however this is most important and where the serious money is made. Learning your area and its details is vital to being able to pick a property and confidently know what is worth renovated, un-renovated, developed, un-developed and how much you willing to pay. Knowing the past growth rates and key price drivers is risk protection and ensures you know what your buying.

4- This would be a good time to do a little research and find a good accountant and solicitor if you don’t already have one. You need to ask them one important question among others- Do they invest money in property and do a lot of their clients do the same (are they property savvy and familiar with its practices and laws). If you had a property coach or mentor this is also an opportune time to double check your direction and get a valuable second opinion.

5- This time is also well spent finding a well experienced and qualified building and pest inspector. Ask them what their lead-time is if you do happen to be in a rush to get an inspection (during a short settlement time).

6- Once you have found your property through your now honed laser guided research and data, you can then start focussing on the one property. This could involve a long list of questions to the property agent, a friendly chat to the neighbours and a visit to the local council to check out zoning and restrictions. This will determine if the property is worth pursuing if it meets your requirements or you need to find another. You can in some instances sign a pre offer agreement if the market is busy to secure your bid while you are researching the finer details to keep other bidders at bay.

7- If you still go ahead this is where you will make an offer (usually a signed conditional sales and purchase agreement) and start the fun and lucrative game of negotiating price and sales terms. With consultation with your solicitor ensure you have terms in the contract if you need to pull out for any particular reason (this could save you from an unwanted purchase). Always try to get a decent settlement term so you have enough time to get all your check done and finance in place (banks can be slow in processing sometimes).

8- At this point you should have agreed on a price and have a counter signed contract with an unconditional and settlement date. This means you are now closer to ownership. You have till unconditional date to have all your checks done and be ready to buy the property.

9- You now have to send a copy of your contract to your finance broker/ bank manager and your solicitor for final checks and approvals.

10- During this time you would have the property checked by your building and pest inspector. Go over all building extensions, alterations, and things that look out of place a builder would know about. Anything out of place can be negotiated down in the contract price to reflect the changes and problems.

11- Once all the checks have been carried out and you are happy to go forward, your solicitor can officially confirm settlement with the selling party and it then goes unconditional. You are 90% of the way to ownership. If there were any more negotiations and it didn’t go unconditional its common practice to extend the settlement date so you still have sufficient time to negotiate, fix problems and reschedule settlement.

12- Once settlement is confirmed, both solicitors will book in a time with the banks to transfer the money and respective property titles.

13- Settlement. Congratulations. This is the day all the money gets transferred and you take ownership.

14- If you are going to live in the property-Party!

15- If it’s an investment, a property manger might need to be employed and all relevant tenant checks done. No Party though…

Any Questions? Contact Us for your answers.

If you liked this article you might also like this one – Investment Property Insurance

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Investment Property Insurance

Written by Investment-Mortgages on February 8, 2010 — 1 Comment

Investment Property Insurance

When it comes to your investment strategy there is nothing more important than protecting your assets you have worked so hard to acquire and build up.

Insurance is a vital part of your asset protection however for many it is neglected and has terrible consequences.

Insurance is a real financial pain as it is not cheap when you may be starting out with your first investment property. It’s hard to justify the cost when there is a very low chance you will ever need to claim. Depending on your local taxation regulations (speak with your qualified tax professional) it may be tax deductible though which helps.

There are two types of insurance that would apply to an investment property.

-Building and Landlords.

-Personal Insurance (Life, Trauma, TPD, Income).

Building and Landlords Insurance

Building insurance covers total building loss/replacement as to agreed policy amount.

This is usually required for any mortgage that a bank holds over your property. They would want to see the valid certificate of insurance before settlement.

Landlords insurance on your investment property is optional however highly recommended. It covers two main things -loss of income and tenant damage.

Loss of rent cover for up to 12 months if property become unfit for letting due to an insurable event.

Rent default by tenant cover, Cover for theft, malicious acts or vandalism by tenants

$20 million legal liability cover for injuries to people, or damage to property

Electric motor burn out and power surges

Accidental glass breakage

Most insurers also have pay by the month premiums at no extra cost.

By needing building insurance to satisfy the banks lending, you have covered the major risk -losing everything (your capital).

The second risk is cash flow and outgoings -Your rent and property damage.

If you lose rent you lose cash flow, if your property gets damaged, it can dramatically increase your outgoings and temporarily halt your cash flow.

Now the third and not thought of risk is being sued by a tenant for accidental injury or the like. This is uncommon however in our litigated world lawyers love this kind of thing (court battles, court proceedings and suing people in general).

Being sued because your tenant tripped over a wet and twisted board on your balcony because the gutter was leaking over the top of it is an all too real circumstance which could leave you seeking your lawyers protection in court. Having legal liability included in landlords insurance allows you to sleep at night.

Having insurance does however lift your game as a professional property investor, as the insurance companies that are billion dollar risk insurers will only insure events that are actual accidents. They will investigate as to whether or not you for-filled your policy requirements and provided a fit and safe dwelling for your tenants to live in.

Gone are the days of just “getting in some tenants”. You have to run it like a business and ensure it has all the makings of a well run and maintained house fit for tenants that lives up to the tenancy requirements. Leaving that balcony railing with some termite damage might not seem like a big deal however who would be sued if your tenant fell off the balcony because of that lack of maintenance. I’m sure you would also be thinking about how thorough your managers are now too. As some insurers also require regular inspections as to maintain the required level of maintenance.

Personal Insurance

Personal Insurance is not everyone’s cup of tea however if passing on debt free assets to your siblings, next of kin or desired charity is a priority on your unfortunate passing then you will need personal insurance.

A burden many face is being laden with their next of kin debt upon their untimely death or passing. Having debt is sometimes essential to buying investment property however passing this on to an unready sibling or family member could be a horrifying ordeal.

Also most children do not fully realise that if their parents insure their lives for the full amount of debt owing they could get a free hold property portfolio.

Personal insurance usually covers two things.

-Life, Trauma and TPD Cover

-Income Protection.

Life, Trauma and TPD cover is about insurance covering accidents/circumstances which cause death (life cover), a serious health issue like cancer and illnesses that impede your ability to work for a certain time (trauma cover) or a serious impairment that would take away your ability to ever work again (TPD cover).

These all are usually paid out by a lump sum amount.

Income Protection Insurance cover is a cash flow protection method to ensure you can fund your outgoings of daily life and the possible shortfalls of your property portfolio.

Most would view this is a must have if you need your regular income to pay the bills etc.

Living with out your income could be a dire situation and the last thing you want is to start selling up your assets to pay short-term bills.

This sort of cover is by regular payments for a predetermined time period with the intention of you recovering and retaining your income.

Insurance is now a necessary evil and we have to accept the cost and ensure we for-fill our obligations to help in a smooth flowing high growth property portfolio.

Do you have a question with insurance? Contact us HERE and find the answer.

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Interest Only Loans

Written by Investment-Mortgages on October 5, 2009 — 1 Comment

Is An Interest Only Loan For You?

Is a principal and interest loan better for you?

This depends a lot on your situation and probably more on what you think the property market is going to do if you are an investor.

Interest only loans have significant lower repayments as they have no principal amount attached. This alone provides a great incentive for investors as this frees up a lot of essential cash flow. It can be the difference of getting a deal across the line or not for a lot of people.

Example: $300,000 loan. Interest only of 8% = $24,000 P/A in payments. (300,000 x 8%)

$300,000 loan   Principal & Interest= $27,780 P/A in Payments

The interest only repayments are $3780 P/A lower which equates to over $72 P/W.

This could be a fair amount for a first homeowner or first time investor.

Even some homeowners utilise these types of loans to make the most of lower repayments however the thought of not actually paying any of your loan down is a hard concept to grasp.

Investors however realise that the price of financing today is always cheaper in the future as the trusty factor of inflation actually reduces the size of your loan at the rate of inflation. You would hope you property goes up with inflation though to make it work!

Interest only loans have been around for over 90 years and are a great finance strategy if the asset is appreciating (going up in value) and the interest rate is still fairly low. That way the growth far out ways the cost of paying the loan and the loan actually decreasing.

The second and probably more popular reason for utilising interest only loans is that (subject to your specific taxation requirements) the interest component of an income producing assets loan is tax deductible.

So if you had a principal and interest loan for an investment property the interest component is tax deductible. If it was an interest only loan, the whole repayment is tax deductible. This helps servicing (negative gearing: see earlier post) for sure come tax time!

Everyone’s situation is very different and seeking great accounting advice (from property specific accountants) is recommended to ensure you get it right first time.

Need a quote or have a lending question? Contact us HERE and we will

Help you out.

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Apartment Lending

Written by Investment-Mortgages on September 2, 2009 — 2 Comments

Lending For Small Apartments

There is the old question that comes up every now and then, -

“Should I buy that studio apartment?”

They are usually marketed with a very attractive rental return however that’s sometimes where the good news ends.

Here is some of the “noise” that surrounds them-: “They won’t lend against small inner-city studio apartments, You won’t get approval if the floor size is less than 50 sqm, Student apartments are not an option, Some lenders won’t lend for apartments in large complexes, Hotel or motel conversions are no good, The location of the unit within the complex is important

While being just “noise” some of these points are somewhat valid.

The recent credit crisis has put the brakes on a lot of lending overall and small apartments have not been shielded from this

The biggest hurdle is usually lender’s mortgage insurance (LMI).

They are the ones imposing all the restrictions that are passed onto the bank.

If you require LMI this is where the hard work starts

Hurdles:

Title. Strata/stratum title is normally acceptable, as are ‘group’ titles.  Mortgage insurers aren’t usually afraid of company title and will lend, though they may lower their LVR.

Size: While this might not be important to the lender, you can expect the mortgage insurer to have minimum limits on the floor space. Always aim to avoid any apartments with a floor space of less than 50 sqm. It must be 50 sqm of actual ‘living area’ (not balconies and car space etc). In special cases this may be stretched down to 40 sqm but the property would have to be in a “blue-chip capital city area”. The Bank may not impose a floor-space limit but notes that LMI might fail the application for that very reason.

Location in the development/complex. One important factor may be whether it’s in a good location in the development or if it’s at the dark shaded noisy rear corner of the complex.

Changing from commercial or industrial to residential. Hotel conversions, holiday lettings and serviced apartments (commercial) lettings rather than residential units fall under completely different lending requirements (possibly commercial). So if they are being converted you may not get finance until the conversion is complete providing it meets all council’s ordinances and general lenders’ requirements, most lenders will proceed but there may be a reduced LVR or restrictions on LMI. The biggest reason is you’re reliant upon the performance of the management company looking after the apartments.

Number of apartments in a development: There might be a limit on the number of apartments within the one development that you can put up for mortgage insurance.

The bank may limit lending on six apartments in any one development or limit lending for no more than 25 per cent of a development

Here are some extras hoops you may have to jump through for finance:

-More thorough valuation inspections and reports.

-A lower LVR (70 to 80 per cent max, though some, usually non-bank lenders, only go to 60 per cent) –a higher deposit required.

-Reduced maximum mortgage amount.

-More expensive LMI if even available.

-Reduced consideration of the rental income to allow for longer vacancies.

-A call for additional or cross-collateral security(see earlier post here).

-Downright refusal of application at worst!

The fundamentals of real estate remain important, not necessarily the fact that there’s a studio apartment. There are plenty of studio apartments that have doubled their value over 10 years. The unit my have great rental returns low vacancy and be located very well so a bit of hard work and research at the start may pay off long term!

Have a lending question?  Contact Us Here and let us help you out.

You may also be interested in this article- Investment Property Insurance

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