Posts Tagged ‘mortgage’

85% Home Loans

May 10th, 2011 No Comments
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If you save up a 20% deposit on your home loan, this allows you to avoid needing to pay for lender’s insurance. Unfortunately, this isn’t always a possibility. If you can afford a 15% deposit, however, this is still much better than a 90% or 95% loan.

You can use either a 15% deposit or 15% equity in another property to apply for an 85% home loan. This offers the bank reassurance that, even if you were to foreclose, they would be more likely to break even. In most cases, you can apply for an 85% mortgage for any purpose, whether you will be buying the home for yourself, as an investment or to refinance you loan.

Some lenders will have no limit on the the amount of money that you can “cash out” on, while others will set a limitation of 20% of the value of the loan. Regardless of the lender, you will almost certainly be required to bring documentation explaining what the money will be used for.

If you have saved up a 15% deposit, you have done more than many other borrowers are willing to do. Some banks may try to convince you that you haven’t saved up enough. For this reason, it is a good idea to get in touch with a mortgage broker. In some cases, they may have deals with the lenders that allow you to apply for a mortgage with no lender’s insurance, even though you haven’t saved up the standard 20% deposit. Even if this isn’t possible, a mortgage broker will be able to find the best deal in the shortest amount of time, simplifying the process a great deal.

Lenders also consider “genuine savings” to be an important part of the decision. Genuine savings are the funds that you have saved up in addition to the deposit. In most cases, a lender would prefer that you have saved up at least five percent of the value of the loan. There are some lenders who don’t require this. Once again, a mortgage broker can be helpful in finding these lenders.

That said, whether or not a lender will be willing to work with you shouldn’t be your only consideration. The extra five percent of genuine savings provides you with a buffer that will protect you from any unexpected costs that you might have to deal with. Most financial experts will argue that it is best to keep all of your basis covered. The last thing that you want to deal with after purchasing a home loan is additional debt.

When comparing lenders, it is important to compare not only the interest rate, but the cost of lender’s mortgage insurance. The ultimate questions are how much you will spend each month, and how much the loan costs overall. All other considerations are secondary.

Eligibility

Not everybody is eligible for an 85% home loan, of course. While every bank has it’s own criteria that they use to determine whether or not to offer any particular loan to any particular borrower, here are some of the most common factors that they take into account.

First of all, your credit history will play an important part in the decision. With a 15% deposit, it is not quite as important that you have a completely clear history. It is, however, helpful to have a credit report free of any seriously negative decisions. Ideally, you will have made all of your payments on time for the past six months, including rent, credit cards, and other loans. This is especially important if you hope to avoid paying for lender’s insurance.

In most cases, the lender will also prefer that you have at least six months of employment with your current employer. This is not always a necessity, but it can make the application process more difficult if you don’t meet this requirement.

Your income is especially important. Your income is the source of the funds that you will be using to pay off the debt to your lender, and many banks consider it to be the most important factor of all. The higher your income in comparison to the cost of the loan, the better. Simply earning enough money to pay off the loan isn’t enough. Banks feel more comfortable if you will have extra funds leftover. Generally, it is a better idea to choose this type of loan anyway, as it is much less stressful to pay off, and provides you with the extra money that you need in order to enjoy yourself.

Banks will also consider your assets and your savings. They will often compare your current savings and assets to other people in your age. They feel that this says something about your reliability as a borrower. The more assets you have accumulated, and the more savings you have put away, the more responsible they feel you are as a borrower.

Apply for an 85% home loan.

Guarantor Loans

May 10th, 2011 3 Comments
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If a person is trying to obtain a home loan and he or she does not meet the requirements, a lender may ask the person to supply a guarantor. The lender asks for this because they do not feel comfortable with the borrower’s ability to make repayments. This situation usually occurs when an applicant has no deposit, bad credit, or little proof of income. Young people and people with low incomes are the borrowers most commonly in need of a guarantor loan.

A guarantor loan is a loan in which the borrowers do not qualify for the loan amount and must gain additional support from a third party. The third party, or guarantor, can be a family member, or in some cases even a friend. The guarantor will either provide additional security or collateral for the loan, or he or she may even help make the payments for the loan.

Having a guarantor, whether it is a friend or a family member, can allow you to get a loan for the full price of the home you intend to purchase. In some cases, you may even be able to get a loan of up to 110% to cover additional costs you may incur, such as stamp duty. Sometimes, this money can even be used to consolidate personal debt.

A guarantor loan is sometimes referred to as a family guarantee loan, family pledge loan, or fast track loan, depending on the lender.

There are two distinct kinds of guarantee agreements. A guarantor loan can either be a servicing guarantee or a security guarantee. The most common type of guarantor loan is the security guarantee. In this type of guarantor loan, the third party’s assets are used as additional security for the loan. If the borrower doesn’t have enough money for a sufficient deposit on the property, or if the borrower doesn’t want to pay mortgage insurance, this type of guarantee will be used. In this case, the lender will allow the guarantor to only guarantee around 20% of the loan instead of the entire amount. This is called a limited guarantee.

Servicing guarantees are typically utilized when the guarantor agrees to help the borrower to make regular repayments on the loan. This type of guarantor loan is very rare and isn’t offered by many lenders. At the beginning of 2011, new nationwide lending laws were put into effect, and, as a result, it is likely that this type of agreement won’t be available for much longer. The new laws require all brokers and lenders to verify that borrowers can handle the proposed debt on their own without hardship, which would not allow service guarantees.

Below are three different guarantor loan examples:

Example 1: Security guarantee.

A couple wishes to buy their first home for the price of $500,000. They are able to afford the loan, but they don’t have the deposit amount of 5% which is required by the bank. A family member acts as a guarantor for the couple by using an owned home, worth $1,000,000, for security on the loan amount of $525,000 (purchase amount plus fees). This gives a loan to value ratio of 35%.

Example 2: Limited guarantee

A couple wishes to buy a home costing $500,000, which they can afford to service. However, they do not have the required deposit amount of 5% required by the lender. A family member agrees to act as guarantor, but only for a percentage of the loan. The guarantor guarantees 20% of the required loan amount of $525,000 (purchase price plus fees) which comes to be $156,250. This gives a loan to value ratio of 80%.

Example 3: Servicing and security guarantee

A couple wishes to buy a home for $500,000, but they cannot afford to service the loan, nor do they have the lender’s required deposit amount of 5%. A family member agrees to act as guarantor for the couple by providing them both with repayment help and security for the loan. The guarantor owns a home worth $1,000,000. This gives a loan to value ratio of 35%.

If you are thinking of becoming a guarantor, it is not a decision to take lightly. If the primary borrower defaults on the loan, you as guarantor will take full liability for the debt. You need to be sure that the person for whom you are acting as guarantor is able to pay back the debt, otherwise you will become responsible for it.

This decision should be thought through very carefully. You should consult your family, as well as a mortgage broker or other financial advisor. As long as the borrower doesn’t default on the loan, agreeing to act as a guarantor can be an excellent way to help someone you love.

If you choose to use a guarantor when you apply for a mortgage, the loan will still be in your name. As such, you will still be able to apply for any applicable government grants including the First Home Buyer Grant.

Get more information on guarantor mortgages.

Home Loans With A 457 Visa

April 27th, 2011 1 Comment
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If you are classified as a temporary resident of Australia with a 457 visa, there are certain obstacles that you may face which can make applying for a mortgage more difficult. Buying a home is never a simple process, and it certainly doesn’t get any easier if you are considered a foreign citizen. That said, a more complicated application process shouldn’t be enough to discourage anybody from buying a home, which is one of the most rewarding financial decisions that you will make in a lifetime.

Deposit

The first obstacle that you are likely to face is the deposit. Many Australian citizens can apply for a loan with a small deposit, or no deposit to speak of. If you are staying in the country on a skilled workers visa, this typically is not an option, In most cases, you will be required to make a deposit worth 20% of the value of the home. For a $200,000 home, this would be $40,000.

The expenses associated with buying a new home amount to about 5%, so it is generally a good idea to save up about 25%. In the example above, the extra 5% would be $10,000, bringing the total that you should save up to $50,000.

While this obstacle may be frustrating, it may actually be for the best in the long run. Those who have the opportunity to apply for a mortgage with a smaller or nonexistent deposit will also pay a higher interest rate, and be required to pay for the lender’s insurance that the bank needs to protect itself against the threat of foreclosure.

If you have been working at your current job for more than a year, it may be possible in some circumstances for you to apply for a mortgage with only a 10% deposit. You will typically need to work with a mortgage broker who offers this type of deal in order to qualify.

Options

Not all lenders will be willing to work with somebody who is in the country on a 457 mortgage. Many banks consider you to be too high a risk. Fortunately, the banks that are willing to work with you will tend to treat you the same way that they would treat a citizen. As mentioned above, their will often be limitations on the size of your deposit, but beyond that the interest rates and terms of the home loan should be essentially the same.

Since it can be somewhat difficult to find these lenders, it is a good idea to get in touch with a mortgage broker. Brokers have contacts in the lending industry, and know exactly which banks are willing to work with you and your situation. This saves you the time that it would take to shop around and find a lender that is willing to work with you. Brokers also know which lenders offer the best interest rates. There are even some brokers available who specialize in working with immigrants and temporary residents, which helps the process run even more smoothly.

Government Involvement

Another thing to be aware of is the Foreign Investment Review Board, known as FIRB. Since you are not a resident of Australia, you need to apply for approval from FIRB. This may sound somewhat concerning, but rest assured that nearly all applications are approved. Still, it is worth understanding the involvement of this government organization.

To begin, you are not prohibited from purchasing either old or new property, as long as you plan to live in the property yourself. If you leave the country, you will be required to sell the home. If the property is old, you can’t buy it unless you are going to live in it.

Another thing to keep in mind is that your own personal financial situation has no bearing on FIRB approval. The board only considers your residency status and the type of property you are considering buying.

The process of applying for approval from the board is relatively simple. The form is only about three pages in length. As long as you are buying the home for your own personal use, and not as an investment, you shouldn’t have any problems. If you are buying the property for investment, you still won’t tend to have problems as long as the property is new.

Can You Receive a Grant?

In most cases, you will not be eligible to apply for the First Home Owner’s Grant (FHOG) unless you are an Australian citizen or permanent resident. There may be an exception if you are buying a home with somebody who is a resident or citizen.

Learn more about 457 visas.

Financial Management In Australia

April 23rd, 2011 No Comments
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The Australian banking system works in much the same way as the banking system in other industrialized nations throughout the world. It is easy to get in touch with representatives of the bank, and in most cases the banks are used to working with immigrants who do not speak English.

Concerns You May Be Facing

If you are the type of person who spends a great deal of their time moving from one location to another across the globe, or if you are moving to the country, you have many different things that you need to keep track of. Not only do you need to physically relocate your possessions and find a place to live, you also need to deal with bureaucratic issues such as making sure that your visa is in working order.

In addition to all of these concerns, it is also important to make sure that your financial situation is properly taken care of. This covers everything from opening an Australian bank account to ensuring that all of your payments are made on time. Thankfully, the Australian banking industry can help simplify this process and alleviate some of the stress that you might be going through.

The Australian Banking Industry

The banking industry in Australia is one of the most reliable in the world. In fact, the World Economic Forum has rated the Australian banking system second place compared to any other banking system in the world. In addition to bank accounts, banks in Australia offer a wide range of wealth management services. Products that they offer include loans for personal, business, and mortgage purposes. Insurance, investments, credit cards, and financial planning services are also available.

Many of the banks in the country can help you set up your accounts, credit cards, and other financial products even before you move into the country, which makes the process a great deal simpler.

In addition to this, there are international banking teams that you can take advantage of, providing you with access to a staff that can speak a wide variety of languages.

Checking Account

The first place that you will want to start when you move to the country is a simple everyday checking account that you can use for day-to-day transactions like paychecks and grocery shopping. There are several things that you will need to think about before you choose to set up an account.

The first thing that you should look for is a bank that is part of a strong network. The availability of the bank should be widespread so that you will be able to access your account no matter where in Australia you are located. At the very least, you will want access to ATMs that will give you access to your account without needing to pay a fee. Australia is not a small country, so the importance of a national chain should not be understated.

It is also a good idea to deal with a bank that you have access to twenty four hours a day, at least online. Do your research and find out if their telephone and website systems are convenient, easy to use, and offer a wide variety of services. The more you can do with an online system, the more time you can save. This advantage is twofold, because a bank with good automated systems also has more time available for its customers who need to speak with a human being.

Never sign up for a bank account without understanding its fee structure. You might be charged for certain types of transactions, for not having enough money in the account, for over-drafting, or even simply for having an account with the bank. Take a close look at the way you use your bank account before you agree to any fee structure.

Savings Accounts

If you have additional funds that you want to protect from the effects of inflation, it is also a good idea to sign up for a savings account, a certificate of deposit, or a similar financial package. Banks earn money by lending out their customer’s funds in exchange for earned interest. If you open up a savings account, you can earn some of this interest yourself. Be sure to find out what the withdrawal limits and fees are before signing up.

Credit Cards

It is a good idea to have a credit card on hand in order to make emergency payments that you can’t otherwise afford, or to build up your credit rating. Banks in Australia offer the same major credit cards that are available in most countries throughout the world, including MasterCard, Visa, and American Express. They also provide new “contactless” cards, which make it possible for you to buy inexpensive items without needing to enter a PIN number or leave a signature.

Of course, if you are planning to make a larger purchase, it is usually a better idea to take out a loan instead. The interest rates are lower, meaning that the costs are also lower in the long run. If you have enough evidence that you will be able to pay off your loan, there are some banks that will approve you on the same day that you apply.

If you are a new migrant to Australia then you should seek the help of a professional mortgage broker before you take on the commitment of a loan. Borrowing money in a new country is an entirely new ball game, so you need to get advice to avoid making any mistakes.

Family Pledge Mortgages

April 22nd, 2011 2 Comments
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If your financial history does not allow you to receive approval for a home loan on your own, you might have more luck if you take advantage of the power of family pledge mortgages. This is when a family member agrees to offer support for your loan by putting up equity in their own property or providing income assistance. This can also be beneficial for people who want to apply for a loan on a home that is too expensive for them to apply for under normal circumstances.

Reasons Why You Might Want to Apply

  • If you have children who are buying a home, they may be limited in the size of a loan that they can apply for. This could be because of their income, or it might be because of the size of their deposit. Relatively small deposits also mean higher interest rates and lender’s insurance.
  • You may want to help your children buy a property now, rather than forcing them to wait until they can save up a large enough deposit.
  • You may have children who don’t have enough money to buy an expensive home now, but they are in a field where it makes sense to think that their income will continue to grow.

Equity Support

Equity support is the most popular form of family pledge mortgage. Under this model, you take advantage of the equity that you have placed into your own home as a form of security. This makes it possible for the family member to buy property of their own.

When somebody takes out a loan with a deposit smaller than 20% of the value of the home, the borrower is usually required to pay for lender’s insurance. The cost of lender’s insurance can be very high, and dramatically reduces the amount of funds available each month for other purposes.

If a borrower has a small deposit, or no deposit at all, a family member can dramatically improve the situation by making a family pledge. In this case, the borrower only applies for an 80% mortgage for the new home. The family member then secures the rest of the value of the home using the equity in their own property.

This process has several benefits. First of all, it is much simpler for the bank to approve the application. This is because the bank only needs to approve the loan internally. It does not need to contact their lender insurer to see if they also approve the loan. The monthly costs are also much lower, since the borrower is not required to pay for this insurance.

In most cases, the person making the pledge will only be responsible for the 20%. They typically are not held liable for the rest of the loan, so the risks are relatively low for them.

It is also worth pointing out that there is no reason that the equity has to come from a family home, although this is the most common type of pledge. It could also be an investment property. All that matters is that the property is owned by the person making the pledge.

A family pledge can be removed when the remaining principle of the loan is less than 80%. This can be because the value of the property increased, because this part of the balance was paid off, or both.

Income Support

This type of pledge is less common because it requires the person who is making the pledge to make themselves liable for the entire amount of the loan. If the borrower’s income is not high enough for the lender to offer them a loan, you can pledge that you will provide your own income to help pay for the loan if necessary. The downside of this is that if they fail to make payments on the loan, you are held 100% liable to make the payments.

While this is significantly different from equity support, both types of pledge can be made at the same time. Equity support can be used to cover the deposit, while income support can be used to increase the overall size of the loan.

An income support pledge can be removed once the other borrower can demonstrate that they are earning enough income to pay for the loan on their own.

Learn more about family pledge mortgages.

Low Doc Loans: 80% LVR

April 20th, 2011 1 Comment
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When you decide to purchase a piece of property, either as a residence or for financial investment purposes, you will most likely need to apply for a loan. Before you will be granted a loan, the bank will want to be certain that you have the ability to make the repayments. This typically requires you to produce tax documents and check stubs, but not everyone can do this.

Applying for mortgages can be an intimidating process, especially if you don’t have the documentation usually required by lenders. There are a lot of different types of loans available, but many of them aren’t accessible to individuals with little or no proof of income, such as those that are self-employed or work as independent contractors. However, there is an option available: the low doc home loan.

A low doc loan, also referred to as a low documentation loan, is a home loan in which the paperwork used in standard loans is not required. This type of loan is perfect for self-employed borrowers that don’t have the proof of income papers typically used in applications for standard loans. Generally, lenders of low doc loans will ask the applicant to provide some proof of income, such as recent bank statements. In addition, low doc home loans are only available for loan to ratio values up to 80%.

Lenders offering 80% low doc home loans may have varying requirements, however most lenders ask that the borrower meet the following basic criteria:

1. You have been self-employed for at least one year in the country of Australia.
2. You have had an ABN number for at least one year.

The idea behind these criteria is to make sure that the borrower has a steady source of income and can afford to make the repayments. Other requirements may also apply depending on the lender. However, understanding these other requirements can be tricky. The requirements for low doc loans with high loan to value ratios, usually between 60% and 80%, are fairly confusing. Below, you will find the details of some typical low doc loan situations.

Issue A:
Refinancing a loan without sufficient business activity statements, or BAS statements.

One option for solving this problem is to acquire a loan with a loan to value ratio between 60% and 70%. Loans for a loan to value ratio of up to 70% can be acquired from one of the major providers without trading statements or BAS statements. Instead, the applicant needs only provide a letter from an accountant confirming that the loan is affordable. In addition, there is no mortgage insurance is required. Some other providers may also provide low doc loans up to 70% loan to value ratio, but the qualifications are stricter.

Another option would be to acquire a loan for a loan to value ratio between 70% and 75%. This type of loan can be obtained through a regional bank with certain requirements. The applicant must have been GST registered for more than 2 years for a loan to value ratio of 75%, but only for one year if the loan to value ratio is 70% or less. This loan is only available if you will remain under $1,500,000 in total loans, including those you may have from other lenders. Not available to developers, primary producers, or builders.

The third solution is to look for a loan with a loan to value ratio between 75% and 80%. Though it is possible to find a loan of this type from providers who won’t ask for BAS statements, the rates and fees will likely be higher than for other loans. In addition, it is not easy to find lenders that will consider cash out loans.

Issue B:
Purchasing a home at 80% loan to value ratio without BAS statements.

In this case, you can get a loan from a non-bank lender, a second tier bank, regional bank, or even a major bank. You will need GST registration and ABN for one year or more. Fees and rate will be comparable among lending institutions.

Issue C:
Obtaining a loan when your exposure is too high with your current lender.

To solve this problem, you will need to engage in debt consolidation and then spread your loans out over several lending institutions so that you meet all of the requirements of each institution. In doing this, it will give you the ability to take out another loan.

Whether you are applying for home loans or personal loans, there are options available for getting the money you need. If you don’t fall under any of the aforementioned circumstances or if you have bad credit, you could also consider using a guarantor to increase your borrowing ability. A guarantor is someone that agrees to be responsible for your loan should you default on it. The guarantor’s assets will be taken into consideration when you apply, which can dramatically increase the amount of money for which you are eligible.

Learn more about low doc loans.

Family Guarantee: Avoiding Lenders Insurance

April 19th, 2011 No Comments
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When you know you have enough income to pay mortgage payments each month, but you simply don’t have enough money saved up to make a good deposit, this can be an extremely frustrating situation to deal with. You might be able to get approved for a mortgage with little or no down payment, but you’ll be forcing yourself to pay for unnecessary costs like lender’s insurance, and possibly a higher interest rate.
Thankfully, avoiding lenders insurance is possible even if you don’t have a deposit saved up. If you have family with equity in a home of their own, or real estate that they are financially responsible for, you might not need to make a deposit at all. This is possible through something called a family guarantee.

Why Banks Require Lender’s Insurance

Before we discuss how a family guarantee can help you avoid lenders insurance, allow us to discuss why it exists in the first place. When a bank decides how to approach a borrower, they perform a complex calculation based on rules that determine how much of a risk you are to them.

As such, a bank has to plan ahead to deal with these risks. If you were to take out a home loan, only to find yourself in a situation where you could no longer pay it off, the bank finds itself in a precarious situation. They home now belongs to them, but it is of no value to them unless they sell it.

Banks are not home salesman, and they are not able to sell the home at its maximum value. In many cases, the bank is forced to sell the home for a loss. This is why they ask for a deposit in the first place. The deposit protects the bank from these losses.

But the bank does not feel protected from those losses if the deposit is too small. They have to find that protection elsewhere, so they hire an insurer. These lender’s insurance companies will cover the losses to the bank if you are no longer able to make your mortgage payments.

Of course, the bank has no reason to pay for the cost of lenders insurance themselves. If that were the only option, they would only lend out to people who could offer a large enough deposit. The banks don’t see it that way, however. They can simply ask the borrower to pay for the lenders insurance, and most borrowers who haven’t saved up a deposit are happy to do so, because they would rather not wait any longer.

How a Family Guarantee Resolves the Issue

With a family guarantee, the risks faced by the bank can be alleviated without making a large deposit and without paying for lender’s insurance. Through this process, the family member agrees to act as a guarantor. They are usually a parent, but they could also be a sibling or a grandparent. They then choose how much of the loan they will secure.

In most cases, the figure chosen is close to 20%. This is because 20% is the size of a deposit necessary in order to avoid lender’s insurance. While no deposit is needed in this case, the family guarantee serves the same purpose to the bank. Essentially, the family member is agreeing that they will be held liable for this amount of the loan if you fail to make your payments on time. They need to back up this claim using equity in a home of their own, or an investment property.

Assessing guarantor credit history is an important part of this process. Not only will the borrower be required to submit documentation. The guarantor will need to do so as well. They will also need to prove that they are financially and legally independent of you.

Benefits of a Family Guarantee

The most obvious benefit is that the borrower is not required to make a down payment in order to avoid or reduce the costs of lender’s insurance. This means that you will be able to buy a home sooner than you would otherwise be able to. You will be able to borrow for the full value of the home without any concerns, including the extra expenses (which usually amount to about 5% of the value of the home).

There are benefits to the guarantor as well. Not only are they able to help their family member buy a home, they can do so with very little risk to themselves. The situation is entirely different from cosigning a loan, which means that the family member could be held liable for the value of the entire home. They are only liable for the value that they have explicitly stated they are willing to secure.

Releasing the guarantee is also possible within a relatively short period of time. If the family member chose to secure 20% of the value of the home, for example, they could be released from the guarantee once 20% of the value of the home had been paid off. They could even be released if the value of the home increased by 20%.

To learn more about family guarantees, visit our website.

Commission Income Mortgages

April 14th, 2011 3 Comments
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If a large percentage of your income comes from commission, you may need to apply for a commission income mortgage. This is when the lender marks down funds that you earn from commission or bonuses as a source of income that you will be using to pay for their mortgages. Considering the financial environment, it’s not surprising that the bank considers this a risky source of annual income.

Since funds earned on commission are less likely to remain steady, banks often require a definitive paper trail to assure them that the cash flow will continue. Mainly, they want to know that you have a sustainable source of income.

If a significant amount of your income comes from commission or bonuses, it is especially helpful to get in touch with a mortgage broker. Since they have contacts in the underwriting industry, they are capable of discussing your financial situation with them directly. This means that you won’t have to bother filling out a home loan application with a lender that would never consider working with you. It also means that it will take significantly less time to find one who will.

Because of the fact that a mortgage broker knows its lenders requirements, they are able to quickly identify which bank is ideal for you after collecting your financial information. Some lenders are best suited for high income borrowers with a good credit history. Others are better suited for people who have had a less than stellar financial performance in the past, and may not have as reliable a source of income.

A broker can collect all of your financial information up front. You won’t be forced to fill out an endless barrage of paperwork. Once the broker has your information, they can typically move forward from there without requiring any additional financial information.

Many brokers will continue to work with you even after your first mortgage. They will stay updated on your financial situation, and continue to monitor the lending industry for opportunities to refinance your home loan and get an even better deal.

Why are Lenders Concerned about Commission Income?

Throughout Australia, salesmen who earn a large portion of their income through commission are turned down for home loans even if their financial situation is robust. Many banks won’t even consider dealing with somebody with a commission based income. Those who are willing to work with you will most likely want two years of documentation to demonstrate the stability of your income.

Banks prefer not to work with people who are paid based on commission because the amount of money you earn each month can vary quite dramatically, and it isn’t guaranteed. People who earn a regular salary are considered more reliable.

This is not necessarily fair. There is no such thing as a “guaranteed income” after all, because even people with a regular salary can lose employment. Regardless, this is the logic used by many lenders.

The good news is that not all lenders approach the subject the same way. There are some lenders who are willing to offer a relatively competitive home loan with as little as three months of income paperwork. Working with a broker is still highly recommended, since banks who are more liberal with who they are willing to lend to often have less than ideal interest rates and terms.

Why Some Lenders Consider Commission Income Differently

Not all banks or lenders approach commission income with the risk-averse logic described above. There are many reasons to think of a salesman who earns this type of income to be very low risk. One of the most important factors is the simple fact that you can always work harder in order to earn more. The need to pay off a mortgage is also one of the strongest motivations to work harder.

Since you are only paid significantly when you make a sale, commission based earners are viewed differently from standard employees. The more they pay you, the more money they are earning. This means that people who work on commission are rarely thought of as an “expense” the same way that most employees are. When economic conditions get worse, commission based earners are less likely to be laid off than standard employees.

Finally, most people who work on commission are very financially stable. They have a keen understanding of the way that money works, and are less likely to spend money that they don’t have.

Information You Might Need

Every lender has a different application process, but many of them require similar information. To begin with, most will require documentation of your two most recent paychecks. These need to include your total income for the year, which can be used to extrapolate your annual income.

If the payslip does not include this information, you will likely be asked to provide additional income like a tax return, a letter from the people you work for, and evidence of your sales performance over a period lasting at least three months.

Many lenders will also require at least two years of tax returns and a letter from your employer demonstrating consistent income.

Find more information about commission income mortgages.