It was a year ago when Justin first approached us to ask about arranging finance for buying a family home.
It was not a straightforward application due to two defaults listed on the credit report, and income was marginal too.
But we were determined to see if we could arrange the finance so Justin could buy a family home.
Justin’s Situation Not Perfect
As mentioned, this was not an easy home loan application.
- Bad Credit – there were two defaults on the credit report, meaning the banks would deem this as a bad credit situation. The defaults were both 4-years old and paid, so we knew that in another year they would no longer show on the credit report.understood
- Affordability – when we looked at the application the income was too low for bank lending but there was a promotion and pay increase due. There was also an accommodation supplement which we knew would increase once there was a mortgage. If we could have used the new income then it would have serviced with a bank, but even then with non-bank lenders the servicing was not going to work.
The good news was Justin had a good amount available for the deposit, so we were only required to get a mortgage for 80% of the purchase price.
The 2-Step Approach We Used
Step One:
The first thing that we needed to do was to get the money so Justin could look at buying a family home.
The bad credit meant that we had to use a non-bank lender, but affordability was an issue with many of them. We managed to get the finance approved with a lender that understood that there was a pay increase coming. The finance was approved so Justin could purchase the family a home, but it was not cheap at an interest rate of 7.95%.
We knew this would be the case, but we also knew that this was really just bridging finance for 1-year until the defaults no longer showed on Justin’s credit report.
The cost for the finance could be quantified too.
Justin was looking at a property on the outskirts of Auckland for $520,000 which was considered good value.
The loan required was $400,000 and therefore the total cost over 1-year was the $4,000 fee for the loan and the interest at 7.95% which was $31,800; therefore a total cost of $35,800. We also knew that Justin was paying rent of $475 per week which would total $24,700 for the year assuming that the rent was not increased. So looking at this we calculated that the extra cost to own the home (excluding rates, insurance, maintenance etc) was just over $11,000.
So knowing that the finance was possible Justin was able to make an offer on the property, but offered $500,000 with the view of going to a maximum of $510,000. The good news was Justin’s offer of $500,000 was accepted.
Justin was able to purchase the new home and the mortgage repayments cost $684 per week which was just a bit over $200 more than what they paid in rent.
So step one was to arrange the finance to enable Justin to purchase the new home.
Step Two:
When we arranged the finance last year we had already calculated that we could refinance Justin to a bank after the credit report showed as clear.
The interest rates being offered at the time by a bank that we tried were 3.89% for both 1-year and 2-year fixed terms, and therefore the mortgage repayments would have been about $455 per week which was less than the rent that they were paying.
We had set a reminder to contact Justin to get started with the refinance to a bank and we have just completed that.
We contacted Justin and got the updated information that we needed and as expected it all looked good.
But the news was better than that!
- We arranged an e-valuation on the property and it had increased in value
- In the past year the interest rates had gone down and the same bank was now offering 3.25% for 1-year and 3.45% for 2-years; hence the repayments would have reduced to about $425 weekly
- But we managed to get Justin’s loan approved with Bank of China who are offering the lowest home loan rates of 2.99% for both 1-year and 2-years fixed. This means that the weekly mortgage repayments drop to about $410 which is a massive saving.
- That’s a lot cheaper than what Justin was paying in rent … and we know that over the past year rents increased too.
So it took a year for Justin to get a very good bank mortgage, but what was the alternative … still renting probably.
Thinking About The Long-Term Benefits
As specialist non-bank brokers people may think that we cannot deal with the banks.
However, the aim is always to get the best lending possible and that normally means we will aim to get your finance with a bank at some point.
We operate as the banks mortgage managers (mortgage advisers) with areas of specialty being the non-bank market and the first home buyers too.
The non-bank lenders can often provide the finance required when banks are not willing to lend.
Often we will use a non-bank lender as bridging finance until the situation has improved, just like we did with Justin here.
The focus for Justin was to get a mortgage with a bank.
