LMI query

[savoys]

Hi, I have a query about Loan mortgage Insurance please. A relative is buying his first home and the bank has told him he will be charged full lmi as the loan will be over 80%.

He has queried this but they have said that the FHOG won't be taken into account( $32, 000), and deduction on stamp duty ( property bought off the plan) also won't be taken into account - they have allowed for full stamp duty, bringing it up to well over 80 %

Can any one please advise on if this is the norm?

Many thanks

 

[Kristine..]

Hi Savoys

The insurance is charged on the loan amount only, not on the amount required to settle on the purchase

Stamp Duty is then charged on the premium, and GST charged on all of it.

If you can tell us what the purchase price is, and what the actual loan amount is - and even, perhaps, which lender, we can give you a better idea of what the insurance premium will probably be

cheers
Kristine

 

[peaches]

Does sound as if your relative has misunderstood. The LMI is based on a double sliding scale ie: the dollar amount and the LVR ie: ratio of borrowing : value of property ( or purchase price).

If value is $500,000 and borrowing is $450,000 - the LVR is 90%. A typical premium for $450,000 at 90% may be 2.20% where as premium on $450,000 at 85% LVR is around 1%

While FHOG and stamp duty waivers affect the amount your relative needs to borrow they have no impact in how the LMI is calculated.

 

[tobe]

Is it wesuck by chance? they seem to only print their docs with the full stamp duty etc, even though state goverments give rebates for FHB, OTP etc.

Not sure why they havent allowed for the grant though. Has your relative had the FHOG approved/processed by the lender yet?

 

[savoys]

Thank you for your replies:
the purchase price was $250, 000, off the plan, land worth $110, 000, now its near completion he asked for a new valuation but was told it wouldn't make a difference as they only take the lesser figure- in this case its the purchase price.

It seems that the FHOG money doesn't get paid till after settlement, so he was counting on that to decrease the loan amount. the bank do not want to get involved in the FHOG amount and told him to contact the SRO as its not really anything to do with them.

They also said he has to take into account the full stamp duty, and therefore borrow more

 

[tobe]

If thats what he has been told, its incorrect. i suggest getting him in touch with one of the brokers on here, or making a complaint with the lender.

Banks do process the grant for off the plan purchases, and they do allow for the reduced stamp duty on OTP purchases where the state government do discounts.

 

[Rolf Latham]

Hi

Unusual that FHOG would not be payable on settlement.

The lender will process it on the borrowers behalf and have the funds available at settlement.

Therefore the FHOG should be included on the funds to complete thus reducing the LVR

Ur friend needs to lean on the lender / broker a lot harder I think.

ta

rolf

 

[savoys]

Thank you so much, I think it's so unfair to make him borrow more and also have to pay the LMI, Thanks again

 

[savoys]

While FHOG and stamp duty waivers affect the amount your relative needs to borrow they have no impact in how the LMI is calculated.[/QUOTE]

Hi peaches,

Sorry, I don't understand this bit, I thought the amount borrowed did have an impact on LMI calculation:

 

[savoys]

Hi

Unusual that FHOG would not be payable on settlement.

The lender will process it on the borrowers behalf and have the funds available at settlement.

Therefore the FHOG should be included on the funds to complete thus reducing the LVR

Ur friend needs to lean on the lender / broker a lot harder I think.

ta

rolf

Thankyou Rolf, he really appreciates your advice and will lean on them !

 

[Token Funder]

Hi

Unusual that FHOG would not be payable on settlement.

The lender will process it on the borrowers behalf and have the funds available at settlement.

Therefore the FHOG should be included on the funds to complete thus reducing the LVR

Ur friend needs to lean on the lender / broker a lot harder I think.

ta

rolf

Looks like a construction deal and, from memory, FHOG not advanced until slab down or similar so not available on dae of first draw down.

 

[Rolf Latham]

good point.............

Having said that there are lenders that will "pre pay" FHOG..........as long as they have BOTH the land and build contract and they know they will get the FHOG approved.

Been a little while since I have done one though

In addition, there are often other ways to get that sort of thing done depending on the lender and the actual deal

ta
rolf

 

[tobe]

The deal is either off the plan (where the property is already built at settlement) and you get the FHOG at settlement.
Or its house and land construction, where you get a loan for the land first, and then either draw the rest of the loan for construction, do a top up loan for the construction, do a new loan for the constrcution, or refinance the land land into a larger loan for the construction.
Rolf is correct there are some lenders who will advance the FHOG at land settlement, (fewer post GFC) if they have the construction loan formally approved. However they may hold back at land settlement 100% of the construction funds (even if you are only borrowing 80%).

There are many cases of inexperienced bank staff and brokers doing a loan for both house and land, and catching the client short at land settlement because each lender has diferent policies on what can be advanced at that time.

Recently came across someone who had a house and land loan at 85%, because the lender required them to leave 100% of the construction back at land settlement, and they didnt take account of the FHOG, they were expected to come up with another 10% at land settlement.

Construction loans are a breed apart, especially at high LVRs.