What Do Changing Bank Policies Mean For You?
In our lives, we are often assaulted by a battery of policies and rules. There are government policies governing the way we live our lives. There are educational policies governing the way our children are taught. There are workplace policies to provide guidelines for how we should work and behave at the office. Even at the bank, where we put our money, there are policies that are governing how we use the money, and they are always changing.
MINIMUM DEPOSITS?
One thing you should be aware of is the minimum deposit rule regarding bank loans. Banks rules and shareholder agreements allow banks to provide funding to borrowers with 20% deposit (as a rule of thumb – depending on property types). Each bank has different regulations and policies governing how they look at a smaller deposit.
Most banks will allow a 5% deposit – however this deposit if you are a first time buyer needs to be genuinely saved in a bank account – and you will need to show a minimum of 3 months statements to prove that you have saved it. It can not be a tax refund, or a gift or sale of a motor vehicle. However IF you had funds from these sources – you could place it in your account and then start to add to the account regularly – for the next 3 months – and provide evidence of savings and funds to complete an application then in 3-4 months time.
Some lenders will not go to 95% unless you have had some form of credit with them already (credit card or personal loan) so they can verify your worthiness. And some lenders will allow the Mortgage Insurance to be added to the loan up to a maximum of 97% of the value of the property.
You need to be aware that Mortgage Insurance is there to protect the bank not you. If they have to sell your home due to default – then the Mortgage Insurer makes up the difference from the sale price if it is sold for say 80% of its value – but they lent you 95%. We will go into this in more detail another time.
FAMILY GUARANTEE LOANS
Family guarantee loans are becoming very popular. This is an option that allows your family members to help you obtain a mortgage or a loan. Essentially, they can use their own home’s equity to provide an extra layer of security for a specific portion of your loan amount. This results in a reduction of your loan to valuation ratio, which can save you a significant amount of money.
There is a long list of benefits, but here are some of the key ones. Primarily you would be looking at a possibility to reduce, or even avoid paying your mortgage insurance. This would outright save you money. A family guarantee loan can also help you maximise the amount you want to borrow, in case the money is not currently enough.
Loans can cover the whole purchase price – meaning that you do not necessarily need to have any deposit. Bank will make sure that the borrower can service the whole loan on their own, as in most situations the guarantor is there for security purposes not to assist with repayments at all.
It is always good to have a plan – so that in 2-5 years the borrowers have either made extra repayments to reduce their loan or improved the property value so that they can “stand on their own” and refinance once they have a minimum of 10% equity built up in the property.
This is just the tip of the iceberg – In essence, a family guarantee loan can be very beneficial, but be sure that both you and your family member know what you’re getting into.
An Expert’s Opinion
Bank policies change every day. If you keep up with the bank policies, you’ll likely be able to turn a situation around to make the most of it. However, if you are unable to, due to time limitations or lack of understanding, perhaps it would be best to seek an expert opinion. Here at North Brisbane Home Loans, we can provide all the expert advice you may need to obtain the best solution for yourself.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
