LMI refund if refinancing.

[maadha]

Hi,

Purchased home on 14/10/2011 for $447K with a 10% deposit. After costs\LMI the total loan is $409k. It's an Interest only loan with Bankwest.

When taking out the loan I told my broker that we are looking to build a granny flat at the rear of the property as it has back lane access and a construction loan was mentioned to be an option for this based on the value post construction.

Now I have asked the broker to go ahead and look into the construction loan and he tells me this...

"I don’t have good news and been trying to think of another way to do this.

It appears since we initially worked all this out the mortgage insurer that Bankwest use have stop doing Granny Flat constructions. What this means is Bankwest would do it as a 80% LVR but not higher than this, and that’s 80% across the existing home and the granny flat construction.

With your existing home worth $447,000 plus $90,000 (estimate after talking to draftsman and builders) for the Granny flat (total $537,000) the total loan could only be $429,600 and you are at $409,000 now so you would have to tip in most of the cost of the Granny Flat construction, the bank would only fund about $20,000 of it. "
​

Who does Bankwest use for LMI and would they ever have done this or is it possible that the broker is just saying that to make it appear as though he looked into this in the first place rather than just assumed it would be ok?

Is it possible to refinance to a lender that could do this (are there any?) and are there any refunds on LMI or would I have to fork out for it all over again?

I'm not really sure how to compare the numbers to evaluate this so any info\suggestions would be very much appreciated.

Thanks.

p.s either way should I be looking for a new broker or have I been unrealistic to assume this would ever have worked?

 

[Propertunity]

In my own investing experience, if I refinanced within 2 years (which I frequently did), I always received back 40% of the LMI premium paid.

 

[Aaron_C]

You can get a refund it's not guaranteed. I wouldn't be too hasty to blame the broker because LMI policy changes all the time, sometimes for good reasons, sometimes for bad. We are all at their mercy.

You will just have to refinance to another lender whose LMI provider does allow granny flat constructions or a lender that has a DUA with the LMI provider so maybe you can slip it through the cracks.

 

[Peter_Tersteeg]

From memory I think BankWest insures with QBE. You may be able to get an LMI refund, but most lenders these days won't grant a refund.

Before going down that path, I'd consider looking at it with BankWest as a simple 'extension'. It would be worth having a 'quiet talk' to someone at BW about it before committing to an application. It's a bit of a long shot but worth investigating.

 

[Marty McDonald]

They use QBE. I don't believe there is a specific No granny flat policy but I could be wrong. I smell BS though.

I would suggest that if you had a building contract with progress payments it could be done as a construction / renovation loan and they would do this. The problem you are going to have is will the "as complete" valuation stack up enough to allow the LVR to remain below 90%? Doubt it.

 

[maadha]

Thanks for the feedback... I have a few questions if you guys don't mind.

I wouldn't be too hasty to blame the broker because LMI policy changes all the time...

Hi Aaron, I know what you mean but it's not just that. I may be wrong but,
I'd rather fund the build via alternative means than get my LVR to 80% only to have to pay LMI all over again when I revalue and redraw in the future.

Is that a valid point or am I off target with that line of thinking?

I'm starting to think he is not the investment minded broker I was lead to believe which is why I'm considering looking for a new one.

You will just have to refinance to another lender whose LMI provider does allow granny flat constructions or a lender that has a DUA with the LMI provider so maybe you can slip it through the cracks.

Sorry Aaron but what does DUA stand for? Do you know which lenders these may be?

They use QBE. I don't believe there is a specific No granny flat policy but I could be wrong. I smell BS though.

Hi Marty, I suspect the same but who can I contact to get this information? Has anyone had a refund from QBE recently?

I would suggest that if you had a building contract with progress payments it could be done as a construction / renovation loan and they would do this.

This is exactly what I was aiming for. I was not going 'owner builder' for this reason but would use a licensed builder.

The problem you are going to have is will the "as complete" valuation stack up enough to allow the LVR to remain below 90%? Doubt it.

To calculate do I estimate the completed value and then subtract 90% to work out how much money I need to put in (including the deposit I've already paid)?

Thanks again,
Matt

 

[Rolf Latham]

some lenders dont do well with Dual anything, wbc is another tricky one.

The granny is ok if attached, but not so if detached.

ANZ is another funny one with I believe a max 70

Im chasing policy now from BWA

ta
rolf

 

[Marty McDonald]

Refunds of lmi are virtually gone nowadays I think.

Work out what 90% of the as complete value is, then the difference between that and the current loan balance is the "cash avaialble" for the construction loan. Any shortfall you would have to cover.

Problem is you think the granny adds $150k value but the Valuer thinks it adds little or no value. They don't look at rental yields and gross up like they do in commercial.

Let's see what Rolf comes up with..

 

[Mick C]

DUA-Delegated underwriting authority, in another words "a open policy where the LMI will accept the lender's decision"

BWS don't have a "no granny flat over 80% " rule...but what they do have is a, <80% multiple construction under one title rule; meaning they will not allow a construction on a existing land where there is a existing property on the building. Ie they allow a max LVR of 80% for duplex construction ( under one title)

But in your case, your broker should be able to fight the case for you and declare it as a "renovations" rater then a "construction "; it will depend on how he/she presents the deal and push for it + the assessor that picks up the file.

As rolf mentioned; if the granny flat is "attached" then the above renovations policy could apply + the LMI (pro-rated) is a lot cheaper as well....

Regards
Michael

 

[Aaron_C]

DUA = delegated underwriting authority. Basically it means that the bank can make LMI decisions on behalf of the mortgage insurer without having to refer the matter. This may allow deals through even though the mortgage insurer would reject it if they saw it directly.

Why do you think your broker isn't investment minded? As rolf said dual occupancy is annoying because lots of lenders don't like anything with more than 1 dwelling on title...especially when LMI is involved (the most fussy of all!)

 

[Mick C]

By the way have your broker submitted the deal yet? ie ave BWS seen the file/ reason for the equity release.

Regards
Michael

 

[Marty McDonald]

Good point Mic about two dwelling on one title. Didn't think about that but you are right it comes down to interrpretation. If they didn't want to do the deal that would be sufficient a reason to not proceed.

 

[maadha]

Curiouser and Curiouser

Broker emailed me back and confirmed the LMI is with QBE.

I called QBE LMI and... They were actually very helpful!

They said that it sounds like the broker (or the banker) is telling 'porky pies' as they(QBE) would definitely look at it as a dual occ. and then it would come down to comparable sales in the area for 3 bed houses with granny flats.

He then said that if no comparable sales can be found then it will be done as a 'unique' application based on various other factors and the chances of approval would probably be pretty low and . Again he said that they would definitely look at it & assess based on merit.

Bankwest would definitely do it at 80% lvr so why not try for 90%

What should I do now?

 

[Mick C]

BW FAQ communication sent via email on the 19.8.2011


•Construction of Multiple Units on one title acceptable up to 80% full doc
•Max of up to 4 units and properties to be retained for investment
•Approval for subdivision must be provided at time of application and take place on completion of construction

------

But as Marty mentioned- it comes down to appetite of the lender at that time; they can do the deal since it;s a granny flat only- but if they don't want to ...they don' t have to and there are plenty of reasons to accept and decline this deal. Just have to know the rules and play within the safe/dangerous limits.

But it depends on how the deal is presented.

Regards
Michael

 

[maadha]

some lenders dont do well with Dual anything, wbc is another tricky one.

The granny is ok if attached, but not so if detached.

The granny flat will be detached.

By the way have your broker submitted the deal yet? ie ave BWS seen the file/ reason for the equity release.

Regards
Michael

No, nothing submitted yet just initial inquiries.

Thanks again.

 

[Aaron_C]

Broker emailed me back and confirmed the LMI is with QBE.

I called QBE LMI and... They were actually very helpful!

They said that it sounds like the broker (or the banker) is telling 'porky pies' as they(QBE) would definitely look at it as a dual occ. and then it would come down to comparable sales in the area for 3 bed houses with granny flats.

Be wary of relying on this. As the other brokers have pointed out it is sometimes the lender's policy rather than the mortgage insurer only. You should get your broker (old or new one) to find out which lender will do what you want to do.

 

[maadha]

BW FAQ communication sent via email on the 19.8.2011


•Construction of Multiple Units on one title acceptable up to 80% full doc
•Max of up to 4 units and properties to be retained for investment
•Approval for subdivision must be provided at time of application and take place on completion of construction

------

If this means it was never really a chance with bankwest then why would broker put me with them in the first place?

 

[Mick C]

l!

They said that it sounds like the broker (or the banker) is telling 'porky pies' as they(QBE) would definitely look at it as a dual occ. and then it would come down to comparable sales in the area for 3 bed houses with granny flats.

To be honest LMI ppl say they will look at EVERYTHING on case by case basis...and they do; so if you have a strong file ( employment, saving history, character, residences, employment type and industry) then the LMI will accept anything to win your business.

But it will come down to the valuation as well.

BWS set rules- rules can be broken for the right client, and they do get broken on a regular basis.
So really ask your broker is he confident that the deal will pass with BWS and if he/she believe your case can be done on a exception; then trust his/her judgement- his/she is there to help...

Regards
Michael

 

[maadha]

... You should get your broker (old or new one) to find out which lender will do what you want to do.

Thanks Aaron,

I thought I had when engaging him in the first place!

 

[Aaron_C]

Thanks Aaron,

I thought I had when engaging him in the first place!

True...if it was me I would advise against incurring LMI for any purchase that is going to have a construction loan on it in the near future for this very reason.