YourLand’s ‘Ask a broker’ series: part 1
- Help & Advice
Understanding the ins and outs of mortgage finance can seem daunting, even if you’ve bought property before. We sat down with industry specialist, Mark Polatkesen, Director and Senior Broker with Mortgage Domayne, to get the lowdown on deposits, savings, and the role a broker can play to help you find the best deal for you.
To view the full Ask a Broker Series Part One Video please click HERE
Let’s start with the question of the deposit. How much do you need to have saved before you can make your finance application?
When it comes to the deposit, it does really vary from bank to bank and also your individual situation and circumstances. Generally, if you want the widest possible selection of lenders to consider you, a savings deposit that’s at least 20% of the property price is recommended, especially if you want to avoid the added costs of lenders’ mortgage insurance, which I’ll explain a bit later. A 20% deposit means you borrow the other 80% from the bank and away you go.
There are lenders in the market that can offer a 95% loan, meaning you only need to save a 5% deposit. That percentage can be reduced even further if you have a guarantor who is prepared to put up security to guarantee the loan. Oftentimes we see parents use the equity held in a property they own to help their kids get into their first home sooner, in which case it may be possible to borrow up to 100-105% of the property value. Of course, everyone’s circumstances are different, so this is something you need to explore early, well before you find the property you want to buy.
What’s the difference between genuine savings and gifted money? Do lenders treat them differently?
Banks need to see what they call ‘genuine savings’ to assess your ability to consistently save money over some period of time, say 3-6 months as an example. They like this savings pattern because it shows you have the capacity and discipline to save money on a regular and recurring basis. Some banks can waive that genuine savings requirement if you are a rental tenant, using your rental payment history as a proxy savings pattern. Again, this doesn’t get around having to pay a deposit — you still need that in most cases. It just might not need to be held for a set period if you have been renting. Policies differ from bank to bank so you should seek advice from your mortgage broker or lender first.
You mentioned lenders mortgage insurance earlier. What is it?
Lenders mortgage insurance, or LMI as it is commonly known, is basically an insurance policy for the bank when you borrow more than 80% of the property value. To put it in simple terms it is designed to protect the lender, not you, but you pay for it in a one-off fee that’s added to your loan. On the one hand, LMI means you may get financing up to 95% which could get you into the market sooner. On the other, it is an added cost you need to account for. The amount of LMI you end up paying depends on your deposit size, so talk to your lender or broker for an estimate before you sign loan documents.
What savings tips should people consider when it comes to getting their deposit together?
A good discipline is to regularly print out and review your monthly bank statements, going through each transaction line by line. You are likely to find purchases you can cut back on quite easily. It could be magazine subscriptions or a streaming service you don’t watch or a gym membership you no longer use. Cancelling those really helps. Plus, review and reduce your other discretionary spending as much as you can. That could mean eating out less or putting off that overseas trip. I know it doesn’t sound like fun, but it improves your cash position and shows the bank that you’re a good saver.
One of the advantages of buying land and building a new home off-the-plan is that you’ve got more time to save before you settle. Let’s say you commit to a land contract today with settlement in 12 months; you’ve got another year to further pump up your savings, which will reduce your total borrowings in the long run.
Finally, what’s the role of a broker? What are the main benefits of working with a broker, rather than a lending institution directly?
A mortgage broker is a conduit between you as a loan applicant and the banks or lenders. We’re basically there to assist you to attain a loan. We have the advantage of looking far and wide across 45 different lenders to find you the best deal for your specific goals and circumstances. We aren’t tied to any one bank or lender, so we’re working on your behalf, not theirs, to get the right outcome. We also prepare all the relevant paperwork for you and present that to the lender, and generally streamline the process as much as possible for you.