Usually, this would not be possible without taking out a high-interest personal loan to use as a deposit.
However, a much needed innovative home loan and the right mortgage broker allowed this client to achieve all that and more!
- Security: Owner-occupied residential unit in VIC.
- Property value: $396,000
- LVR and term: 100% LVR split into three loans, 30-year loan term.
- Deposit: No deposit except for a lender application and settlement fee.
- Income: $128,000 p.a.
- Issues: Low credit score, no deposit, new job.
- Solution: An innovative 100% LVR home loan product plus a credit exception attained with the lender got the deal over the line.
Let’s meet our client!
Meet Suzy, a returning Australian expat who had been working as a licensed solicitor of the Senior Courts in the United Kingdom (UK).
She had recently moved back to Australia after accepting a job offer to work as a Data Protection Lawyer for a multinational company.
Her new job came with a bump in pay.
She had found a one-bedroom unit that she was really keen on close to her workplace.
No other lender could help with what she wanted to achieve.
Being a savvy individual, she dug around online, found us, and enquired!
Grim preliminary assessment
Jonathan Preston, a senior mortgage broker at Home Loan Experts got the call and went to work.
First, he established exactly what Suzy was looking to achieve, her objectives and requirements.
After a preliminary assessment, it became quite clear she didn’t have a lot of options.
What was the issue?
The crux of the problem was that she had no deposit and no guarantor.
Typically, lenders require a minimum deposit of at least 5% of the property value.
Besides, she had started her new job only 5 months prior. Although, not a big issue, it was a potential credit issue.
Lastly, her Equifax (previously known as Veda) Score was below average, sitting at 499.
Pulse on the mortgage industry
We had recently added a new lender to our panel. The lender offered an innovative new product that allowed eligible professionals to buy owner-occupied properties with no deposit, no guarantor, and no LMI (Lenders Mortgage Insurance ).
Please note that this home loan product is not suitable for all professionals, as lending criteria are rather strict. Furthermore, every deal is assessed on a case by case basis.
Not only did this loan allow her to buy a home now, but it also saved her tens of thousands of dollars in LMI fees.
As is the case with all thing good, you can’t have your cake and eat it too!
While the product may have been suitable, to qualify for one was as tough as it gets.
Suzy, as an applicant, fitted most of the lending criteria of this lender except for two, namely:
- A minimum Equifax score of 650 was needed.
- The borrowing power is assessed at a much higher assessment rate, plus the way the loan is structured also limits the maximum loan amount one can borrow.
Working behind the scenes
Now when assessing the borrowing power (serviceability) of clients, usually the most significant factor that negatively affects it are living expenses and high unsecured debts like credit cards, car loans etc.
Banks, in general, have really tightened their scrutiny around living expenses.
Categorically, lenders now use the HEM (Household Expenditure Method) or your declared living expenses verified through your bank transaction statements – whichever is higher!
The serviceability was tight but within an acceptable range. Morever, the client was willing to close a few personal debt facilities to help with serviceability.
After ensuring he had all the documents required, namely:
- Payslips for income verification;
- Both the new and old employment contract;
- Bank transaction statements for living expenses verification;
- Professional Degree;
- Credit report etc.
Since Jonathan had extensively poured over the overall debt position, he was confident that this deal would be approved if an exception on the Veda score was attained.
Getting a credit exception
He got in touch with the lender directly to run the whole deal through the credit assessor first before submitting the application.
To quote the lender, “We’d need to have a look at the CRAA (credit report), and overall debt position – i.e. existing credit cards etc to try and determine the 499 Veda. …If the Veda (Equifax) was over 650, we would have no hesitation in assisting this borrower.”
He made the argument that since the client formerly was working in London and had only just recently returned home, hence the minimal credit activity and only recent enquiries for credit which lead to a low score.
After a soft credit pull on Suzy’s credit report by the lender, the assessor agreed with our broker. The reason for a soft pull was so as not to leave any credit enquiries on her credit file than required.
A full fact sheet of the credit quote and fees on the deal were received.
It was only then that a formal written recommendation was made to Suzy, which she gladly accepted.
A pre-approval was granted for the full loan amount of $395,000, and an unconditional approval followed soon after.
Except for the standard application fee of $1,500 and a $2,000 valuation fee payable at settlement, there were no other charges.
In conclusion, she was able to buy a property without a deposit, without help from the bank of mum and dad, all the while saving tens of thousands in LMI fees.
Key details: Household of three
A three-way split structured the home loan as below:
- Split 1: 40% of the loan amount – $158,000 (30-year loan term with 5 years interest only period)
- Split 2: 40% of the loan amount – $158,000 (30-year loan term, principal and interest repayment)
- Split 3: 20% of the loan amount – $79,000 (10-year loan term, principal and interest repayment)
Besides, the loan featured a blended interest rate of 5.69% p.a. which is switched to a standard variable rate once the loan to value ratio falls below 80% (i.e. when the 3rd split is paid off).
An accelerated repayment ensured that 10-year split is paid off earlier.
If she makes the minimum monthly repayment of $2,466, she will drop to a lower interest rate after only 7 years. Moreover, this can be achieved much sooner if she chooses to make extra repayments.
Lastly, since there are no penalties for paying off the loan earlier, you’re encouraged to do so. A win-win situation!
Are you a professional looking to buy a property with no deposit?
Our brokers are credit experts first and foremost and aided by almost 40 lenders on our panel; we can usually find you a solution.
Even when there isn’t a suitable option at the moment, our brokers don’t shy away from spending up to 6 months with clients to get them to a point where they can qualify for a home loan.
To find out if you qualify for a 100% LVR home loan for professionals, please give us a call on 1300 889 743 or fill in our online assessment form today.