Hi Jason
The online calculators have broken many a heart!
For a purchase of $370,000, your step-son will need to have about $20,000 of his own money plus the FHOG of $10,000 to pay for stamps, legal fees, the lender’s risk fee and other fees and charges.
Many borrowers think they can borrow lots of money, but what they forget is that borrowing and buying are two completely different kettles of fish.
If his serviceability is strong, or if someone is willing to gift him the $20,000, then there is still the matter of his short employment history to contend with, and the circumstances of his employment.
Assuming that he is buying the property alone – and this is particularly important if he is applying for the first home owners incentives, then there are other ways of raising the deposit, such as the Fast Track / Family Pledge / Family Guarantee options, whereby someone else puts up some equity with a limited guarantee. He is responsible for all the borrowings, but the loan against ‘his’ property is 80%LVR and the loan secured against ‘someone else’s’ property is sufficient to provide Funds to Complete.
For example, if the property is $370,000 plus costs of $30,000, then for a $400,000 loan he would need $500,000 equity.
His property would support a loan of $296,000, and the other property would support a loan of $104,000. He would pay both loans. There would be no Lender’s Risk Fee as the LVR would be at or below 80% for his property.
Regarding working for the Family Company, there are various extra documents which need to be provided for this, however a working history of less than six months, unless he is a Graduate of some kind, would probably not get him a loan in his own right. I would suggest, as Alexlee has, that he decide on what purchase price he is comfortable with, how much shortfall he will have, and save that shortfall.
When No #2 Son bought his first property on his 18th Birthday, he was still working on Trainee Wages of $280 per week. He was approved for a loan of $148,500 in less than eight hours as he had a savings history showing that he had saved the equivalent of the mortgage payment every week for 18 months.
If your step-son can save the required contribution ie about $20,000 during the next six months then he will have earned his stripes and most likely the loan.
By the way, I recently had a customer, highly qualified, who had worked for his employer for eighteen months. He was not approved to borrow more than 95% plus LRF as his employment was less than two years. By the time he found a suitable property, he had been with the employer 21 months, and had also received a pay rise. He was granted a 97% plus LRF loan but I had to apply for an exemption for that as his employment history was still less than 24 months (23 months at date of settlement).
Regarding 106% loans, there are a few lenders which will go to this level, but they have very strict lending criteria as they are fully exposed to the risk, and insist on two years tax returns.
There really is no substitute for a little patience and a lot of saving. If he can’t save for the special purpose of simply proving that he can, then he may not be able to carry the day in, day out, burden of a mortgage of that size.
As you know, there is more to a mortgage than the monthly payments. No #2 Son recently had to replace the gas wall furnace which was $1,000 he wasn’t expecting to pay, and being winter, he was given only two weeks notice to replace the heater.
There is a lot of wisdom in the old saying of ‘Hasten Slowly’. He may have looked around and found a house he likes, but the opportunity of a life time comes around every Tuesday, and now that he is thinking this way, by Autumn he will have saved some money and found an even better house!
Cheers
Kristine
By the way, I know of only one lender which will take ‘board’ into account as income. Board is not an enforceable arrangement and cannot be relied on. If he is calculating his ability to service the loan on the basis of renting bedrooms to mates then he is occupying a different reality. Once they leave (usually, to ‘go back home’ where they don’t pay board and Mum does the ironing and cooks the dinner) then your lad could be stranded very high up the financial beach.
