Finance for my mum

[Ergophobia]

My mum is in the process of buying a property and has hit a hurdle.

She is under contract pending finance approval for purchase of a house for 233k, loan is 150k so LVR only 64%.

She owns an investment property valued at 315k, no loan but tenants in common with a friend 50/50.

The bank has asked her friend to gaurantee the loan, which ofcourse he doesnt want to do.

Mum is low income, and 67 years old. But I would have thought with a LVR or 64% the banks risk is very low without having to rely on her investment property for security.

Any suggestions?

 

[Corey Batt]

The issue it sounds is that the equity is being used as collateral? As they own the property 50/50, the lender will want to see all non loan parties guarantor the loan.

To minimise the guarantee, it would be best to take the deposit funds as a separate loan, instead of having the friend guaranteeing the full amount.

Or is she providing these deposit funds without accessing her equity?

 

[Brady]

From the OP original post doesn't look like there would be a need to x-coll.

OP said loan amount is $150,000 for a $233,000 purchase thats a 64% LVR

There isn't any mention of another loan, so from above there is enough equity without any additional security.

But yes... asking for a guarantor would seem like they're the existing 50% owned property.


Sounds like there has been a breakdown somewhere here, not adding up.


Can you mum service the debt on her low income? They still should be able to consider 50% of the rental income from the existing property.

 

[Ergophobia]

Thanks for the replies

The deposit is from her savings, im not sure why they are asking her friend to guarantee the the loan.

I need to talk to her broker who is on holidays o/s

 

[Brady]

Then shouldn't be a reason at all for other party to be a guarantor. Can no longer do 'servicing guarantors'.

Do you have a plan to resolve the situation whilst her broker is o/seas?

 

[Terry_w]

Thanks for the replies

The deposit is from her savings, im not sure why they are asking her friend to guarantee the the loan.

I need to talk to her broker who is on holidays o/s

I think the bank is just going for the grab. No reason to use the other property at all - unless by deposit you mean the 10%? If she had 20% and costs there is no reason to use the other property - or perhaps she doesn't service?

 

[Corey Batt]

If it's from her savings there's no need to tie the existing property into the mix.

Does the broker have an assist or another broker in the office while they're away? Surely they didn't leave with files in progress without someone to mind them..

 

[Ergophobia]

Ok, after phoning the lender (fastlend / AFSH Nominees / NAB) there I couldn't get anywhere as they needed the broker to resubmit the application without the second property as security.

the broker finally called us (from england) and said that, due to my mother age (67) and low income (60k) the loan wouldn't get approved without security over her second property. Since its owned 50/50 tenants in common they need a personal guarantee in order to access her equity in the second property if required.

I would have thought a 65% lvr was already 0 risk for the lender... I guess they are just being conservative.

 

[Brady]

Time to try different bank or broker, because that's a crap response.

The the loan services, no reason to grab more security if LVR is less then 80%

 

[Terry_w]

Ok, after phoning the lender (fastlend / AFSH Nominees / NAB) there I couldn't get anywhere as they needed the broker to resubmit the application without the second property as security.

the broker finally called us (from england) and said that, due to my mother age (67) and low income (60k) the loan wouldn't get approved without security over her second property. Since its owned 50/50 tenants in common they need a personal guarantee in order to access her equity in the second property if required.

I would have thought a 65% lvr was already 0 risk for the lender... I guess they are just being conservative.

Must demonstrate any ability to repay the loan under the NCCP legislation.

 

[Peter_Tersteeg]

I would have thought a 65% lvr was already 0 risk for the lender... I guess they are just being conservative.

65% LVR means they don't need additional security. Affordability may be a factor and the lender may still decide that your Mum's too high risk, but there's no need at all for additional security.

There's one of several explanations:
1. You've misunderstood what the broker is telling you (it does happen).
2. The broker is clueless.
3. The broker is lazy and can't be bothered trying.

 

[Terry_w]

I suspect the mum doesn't service but the income of the guarantor will get it over the line. - guessing

 

[Peter_Tersteeg]

Since its owned 50/50 tenants in common they need a personal guarantee in order to access her equity in the second property if required.

Just re-read the post and picked this bit up...

Is this property owned 50/50 with someone else? If that's the case then that second person is going to need to be on this loan application in some capacity as well. You need the other person's consent to access the equity regardless of the LVR.

I suspect the mum doesn't service but the income of the guarantor will get it over the line. - guessing

Terry I can't think of a lender that would allow a servicing guarantor under the scenario described. Definitely ChoiceLend/Advantage/NAB won't do it.

Equity guarantors are fairly common, but outside of a company or trust ownership scenario, income guarantors pretty much died with NCCP.

 

[Terry_w]

Terry I can't think of a lender that would allow a servicing guarantor under the scenario described. Definitely ChoiceLend/Advantage/NAB won't do it.

Equity guarantors are fairly common, but outside of a company or trust ownership scenario, income guarantors pretty much died with NCCP.

Yes you are right - except if there is a spousal relationship (or this is claimed)

 

[Ergophobia]

Just re-read the post and picked this bit up...

Is this property owned 50/50 with someone else? If that's the case then that second person is going to need to be on this loan application in some capacity as well. You need the other person's consent to access the equity regardless of the LVR.

Hi Peter,

The property she is buying is in her own name. She also owns an investment property 50/50 with no mortgage.

 

[Peter_Tersteeg]

Unfortunately that's going to make it harder. Most lenders have a policy where if another property is owned 50/50 with a third party, the bank will assume the borrower has 100% of the debt, but is only entitled to 50% of the income.

The result of this is servicing often goes down the drain. In this case there's no mortgage on the other IP so it's not all bad news.

There are a few lenders that make exception to this policy but ChoiceLend/Advantage/NAB aren't anoungst them.

 

[Ergophobia]

It gets worse,

It turns out the contract is unconditional

So if we miss settlement on 24 July mum will incur interest charges of about $440/week.

We have decided to ditch our awol broker and start a new loan app without offering security over the second property.

 

[Terry_w]

It gets worse,

It turns out the contract is unconditional

So if we miss settlement on 24 July mum will incur interest charges of about $440/week.

We have decided to ditch our awol broker and start a new loan app without offering security over the second property.

Has your mum sought legal advice on the contract. she could lose the deposit, and more...

 

[Ergophobia]

Yes, her solicitor has informed her of the consequences... pitty he didnt confirm finance was approved prior to drawing up the contract.

So much for the NSW system protecting buyers.

 

[Ergophobia]

Well there is a happy ending to this story, thanks to Summerland credit union .

mum's Loan is approved, and she might even make the settlement date .