There are plenty of situations that require some ‘out of the box’ thinking and often the use of a non bank lender to get the desired result … the purchase of a new home.
This month we had the pleasure in helping Neil get into a new home in Taranaki.
A Summary Of Neil’s Situation
Neil contacted us as he had already tried the bank and realised that he needed a non bank broker’s help.
He had been paying $360 per week to rent the house which they had been calling a home, but they wanted a home that they could call their own.
Like many first home buyers they knew that they could afford to buy a home, but they lacked the deposit needed. With his KiwiSaver and the First Home Grant he had under 10% deposit, and he also had bad credit with three defaults on his credit report. The defaults were all paid, but this means the lenders will still treat this as a bad credit mortgage application.
Combine the bad credit and the low deposit and it really didn’t sound like Neil would be able to buy a home.
He was about to give up when a friend mentioned that he should contact a specialist non bank broker.
Thinking Outside The Box … It’s What We Do
As non bank brokers we often get difficult applications, and often what bankers and other brokers might deem impossible.
It’s difficult enough to get a home loan with less than 20% deposit, but when you have less than 10% deposit in the current environment the lenders will almost certainly decline to approve the loan application. Add in the bad credit and there are not many choices available.
When we reviewed this we spoke to Neil about co-ownership.
It can be a good way to purchase a home when you have a smaller deposit and it also means the bad credit and savings history do not impact on the lending as we are using a non-bank lender whom will accept this and co-ownership that shares the property ownership.
We explained that this is really the only option for Neil at the moment, but we also believe that this is a good option to get him into a home.
This is how it works;
Based on your purchase of $330,000 the numbers work like this;
| Purchase Price | $330,000 | |
| Less Your Deposit; | ||
| KiwiSaver | $18,000 | |
| First Home Grant | $3,000 | |
| Other Savings | $0 | $21,000 |
| Therefore Required: | $309,000 | |
| Funded by; | ||
| Mortgage | 75% + fees | $250,970 |
| YouOwn | 20 % | $66,000 |
| Less Fees | $7,970 | |
| $309,000 | ||
This is funded using a 1st mortgage provided by a non-bank lender and a co-ownership by YouOwn.
This structure means that Neil is paying approx. $460 per week which is about $100 per week more than he was paying in rent.
Of course there are some other costs with home ownership that he needed to consider too; mainly rates, insurance and maintenance.
He also needed to be aware that with the shared ownership (co-ownership) he will want to buy the remaining share from YouOwn in the future. This is generally done after 5-years, and they make their money from the expected increase in value.
In Neil’s situation YouOwn has taken a 20% share of the property worth $330,000 so YouOwn’s share = $66,000
If the value of the property is worth ‘say’ $400,000 in 5-years, then the YouOwn share would be worth $80,000 (20%) so an increase of $14,000 which effectively Neil would need to pay to buy them out.
Neil Has A Home Now
Co-Ownership is a step into ownership whereby Neil now owns and therefore get the capital gains on 80% of the house, and later he can then buy the remaining 20%.
The situation needed some creativity, but that is what a non bank broker can offer.
Most of all for Neil he was successful in getting the finance and now has a place that he can call his home.
He said “I could not have done this without your efforts, and for that I will be forever grateful”
Furthermore the message he wanted to share was not to give up on home ownership, even when at times it does seem impossible. With the help of a non bank broker your dreams can come true!