What’s more, they come with highly competitive rates.
It is often the case that, as a chartered accountant, you may have already been pre-approved for a home loan by your bank.
But, it doesn’t hurt to compare your bank’s offer with no LMI home loan options with other lenders before committing. It could save you between $23,563 and $25,740 in LMI fees.
And that’s precisely what this couple did.
Home Loan Experts’ mortgage broker, Preeti Kowshik first spoke with Richard and Becky who had already been pre-approved for a mortgage with CBA.
However, the financially savvy couple wanted to compare no Lenders Morgage Insurance (LMI) home loan with other lenders before they committed.
They knew that if they got the LMI waived on their mortgage, they were going to save up to $26,928 (Genworth) in LMI fees. In addition, if the LMI premium is capitalised onto the home loan, they would have to pay an additional $136.44 per month (at 4.50%p.a.) just paying off the LMI.
A little bit of background on the couple
Richard was a Chartered Accountant and a member of the Institute of Chartered Accountants in Australia (ICAI) and had been working as a risk manager earning roughly $140,000 p.a.
Whereas, Becky worked as a registered nurse and had been doing so for the last eight years. However, she was on paternal leave most of the previous financial year and had only started working part-time 3 days per week.
They were both very financially responsible. They didn’t have a lot of debt except for a few credit cards with a total credit limit of $15,000.
Moreover, they had both also recently paid off their HECS debt.
Interestingly, when they approached us, the couple had already sold their principal place of residence (PPOR), and they planned to use the majority of the sales proceed of $265,2020.87 towards a deposit for a new house.
They were looking to purchase a free-standing house in the hills valued at slightly over a $1 million.
The first step – Fact-finding
Having done this countless times, Preeti knew exactly what she needed to do – get a clear idea of their financial situation, and establish the strengths and weakness of the application.
Since 2019, many employers do not issue a PAYG summary, as was the case in this situation. A copy of their Notice of Assessment was instead used to verify the income of the couple.
In the assessment, we found out that Becky had only recently returned to work on a part-time basis after her maternity leave. This created an issue as most lenders require at least a 3-month part-time income to work out the annualised year-to-date income (YTD).
A preliminary living expenses assessment was also carried out. Most lenders use the higher of the declared living expenses and the HEM (Household Expenditure Method) in their assessment.
The borrowing power, albeit tight, was within an acceptable range with most lenders.
Potential credit issues
She knew from the get-go that there were a couple of potential credit issues, namely:
- Minimum income requirement: To qualify for the LMI waiver with most lenders, an eligible accountant needs to have a minimum annual income of $150,000 in NSW, ACT, VIC and QLD and $120,000 in WA, SA, NT and TAS. Richard’s Notice of Assessment (NOA) showed an income of $140,000.
- 4 times income rule: Another major caveat of the LMI waiver was that they limited the maximum loan amount to 4 times the annual income. E.g. With an annual income of $200,000 x 4 = $800,000, you can only get the LMI waived if borrowing not more than this amount.
- Part-time employment: The issue was that most major lenders would not use the part-time income from the spouse, especially so if they haven’t completed 3 months. With the loan amount, they were trying to borrow the serviceability was already tight, to begin with. More so, if the part-time income from the spouse couldn’t be used in the calculation.
She wondered if the deal could be submitted with a lender that could approve the couple for the LMI waiver with no changes.
Or if the couple would have to make changes to become qualified?
Once a clear idea of the financial situation of the couple and their purpose and objectives for the home loan was clear, our broker went to work on mitigating all the potential credit issues.
- Minimum Income Requirement: One of our major lenders doesn’t have a minimum income requirement to qualify for the LMI waiver. However, they had their own criteria that the couple needed to meet.
- 4 times income rule: A couple of our lenders had recently done away with the 4 times the income requirement for accountants. was also recently changed.
- Temporary employment: She worked out that with one of our lenders, we could use the part-time income from the spouse as a credit exception, provided it was granted.
The final touch
Once a suitable lender was identified and all the credit check such as credit scores, serviceability (borrowing power), living expenses verification, DTI ratio were done, only then did Preeti made her recommendation to go with a couple of suitable lenders.
But even before that, Preeti ensured that the deal was going to go through by directly liaising with the lenders and mitigating the weaknesses and highlighting the strengths of the application.
She got the lender to accept a credit exception on using the part-time income in the serviceability calculations because of the overall strength of the application. It was helped by the fact that she had a track record of employment with the same employer (8 years) plus she worked in the essential service industry.
An exception is only granted on rare cases.
Once that was done, she submitted the deal and got a pre-approval and a written acceptance of the LMI waiver the next day.
There’s more. Preeti then requested a pricing approval to obtain discounts on the standard variable rate.
The request was approved, and a 1.72% discount was received on the SVR. The final customer rate was 3.09% p.a. (principal and interest rate repayment).
All in all, the couple got approved for the full loan amount, got the LMI waived and still got a great rate.
Are you an accountant looking for your next property purchase?
If so, there’s almost no reason not to take advantage of the LMI waiver available exclusively to select professionals – accountants being one of them.
Moreover, the interest rates on these loans are also highly competitive.
To find out if you qualify, speak directly with one of our specialist mortgage brokers by giving us a call on 1300 889 743 or fill in our online assessment.