Michael Ryce, The Mortgage Professionals
Lisa: This week’s industry expert is Michael Ryce. Michael is from The Mortgage Professionals. Michael has had a very long and successful career in dealing with people in the Lower North Shore in lending. Michael is the person to see, whether you are a first home buyer looking for somebody to guide you through the process, or somebody who has a business, who is looking to extend their portfolio and looking for somebody to deal with the complexities of it; Michael is really the person to see. OK Michael, so when our buyers are looking to obtain a loan, what are the top ten tips that you could give them?
Michael: My first tip is understanding your short and long term investment goals as far as the property you are getting involved in is concerned. For example, you will require a totally different financial structure for a short term renovation as opposed to looking at a long term investment property that you are planning on holding for a longer period of time. Or perhaps you are upgrading into a new principal residence that you may be looking to move into for a longer period of time.
That brings me to my second tip, which is to budget and set limits on what you are looking to spend. Once you have done that, you can obviously fit the household budget around that home loan repayment and be more particular when you are looking for a home to purchase.
The third tip is to start simulating your home loan repayment, so in terms of the deposit accumulation process, start paying into your savings account at the rate you would pay your home loan. That will get you comfortable with that and help you to work around your household budget. In doing that you should also allow for increases in interest rates. That’s actually quite topical at the moment, so it’s a good idea to budget for a 1% to a 1.5% increase.
Organising a solicitor or a conveyancer in advance is my next tip. There may be a situation where you actually find a particular property that you really like. The chances are a lot of other people are going to really like it too, in which case, you might be in a competitive situation and need to move quite quickly. Already having a conveyancer or solicitor ready to review the contract before you have moved forward (after you have organised your home loan) is obviously going to save you some time and energy as far as the whole process is concerned.
The next one is to actually have a home loan approval pre-approved before you go out into the marketplace to look, because once again, if you do happen to find a property that you really like, you will be ahead of the crowd if you have already got your finance in place. What I mean by that is, rather than discussing it casually with your mortgage broker or any other lender, it’s about sitting down with them, discussing the alternatives, coming up with the best solution and actually submitting the paperwork so you actually get a written pre-approval from your lender. That allows you to go out into the market with a lot more confidence for properties being sold by private treaty or for putting your hand up at an auction as well.
On to tip six, which is to obtain a copy of your credit file. You can do this for free from www.mycreditfile.com.au. There are a couple of advantages in doing this, the first one is to see any small blemishes on your credit file that you may have potentially forgotten about. Because underwriting criteria with the lenders has increased since the GFC, this may make it more difficult for you to obtain the home loan that you are looking for. So it’s best to be on top of that before you lodge your home loan application.
Tip seven is to be ready with your supporting documentation. This is relevant for first home buyers as far as the accumulation for their deposit is concerned. Lenders just don’t want to see large amounts just dropping into the bank account in the last couple of weeks. What they would like to see is an accumulation of the deposit over a number of months. So demonstrating that is really important for a first home buyer in terms of having their home loan approved as quickly and smoothly as possible.
For self employed people, having their tax returns prepared as soon as the financial year ends is the easiest way for them to present the correct documentation and be able to have their home loan approved as smoothly and as quickly as possible. If the lenders are looking at old information, they may not be able to approve your home loan as quickly as if you are able to give them your current information.
Tip eight is to pay out your credit cards and reduce your credit limit. We have all had letters from the bank offering additional credit cards and increasing the limit on our existing cards. What people forget though, is that when the lenders are looking to approve your loan, they add everything up together, and then they assume that the whole amount is outstanding. So potentially if you have 3 credit cards and each has a $10,000 limit (and you may not have any credit on those) and the lender will assume that you have $30,000 outstanding on those, because potentially, that is what can happen today if you go out and start spending on them.
So what I do recommend is that if you do have any credit card debts, you pay them off. Because you potentially have to pay 16, 17 or 18% on that money and that is obviously a lot more expensive than on the home loan.
The second thing is consolidate those cards, and bring them down to something you are able to live with.
Tip nine is to research your loan options whilst seeking professional and knowledgeable support from a mortgage broker. The big benefit about working with a mortgage professional is that rather than having to tell your story three or four times to three or four different lenders, the mortgage broker (an agent for up to 20 different lenders) can explain the different options for you from each of those lenders, as well as customising your different situation to each lender as well.
There are some lenders who, for example, won’t support non-resident borrowers. Mortgage brokers know which ones they are, so we don’t spend or waste anyone’s time in taking borrowers to a lender who’s not going to support them. Saving time is what working with a mortgage broker is all about, as well as cutting through a lot of the clutter, as far as the home loan industry is concerned and working through which home loan is going to work for you.
My last tip is actually more relevant to when you have the home loan up and running. What we are trying to do is get that home loan paid off as quickly as possible.
Two quick and easy strategies that are going to help you with that – the first one: pay fortnightly. That’s because there are 26 fortnights in a year and only 12 months, so effectively you end up making extra payments that you wouldn’t actually notice.
The second one is to make whatever opportunities you can to pay a little bit extra. Obviously the minimum payment is all the banks are looking for, and they are trying to keep that loan outstanding as long as possible, because that is going to be the period in which they receive interest. But if you can pay even a couple of hundred dollars a month more, then that is going to be a big difference and bring years off the term of the loan.