Need help with finance on first home

[azaram]

Hi Guys,

I'll cut right to the chase. We've negotiated on an apartment in the inner eastern suburbs of Sydney for $780k. Everything was looking perfectly fine until our loan application was rejected by ING. It turned out that my partner had a default on her credit rating. It was for a David Jones store card that she had many years ago and this was the first we'd heard of it. It happened in 2003 when we moved from Brisbane to Sydney, so they simply didn't chase us up and lodged a default. We paid it as soon as we found out and it's now shown as paid on the credit report. It won't disappear off the report until next July.

However, I had no idea how dire this could be in the eyes of lenders. Pretty much no normal lenders will touch us now confused. It seems bizarre to me. Surely this happens all the time to people and we had absolutely no way of preventing this. Why would we sit with $60k in a bank account doing nothing when there was a unpaid debt on our record?

We're otherwise exceptional candidates. Between us we gross about $230k/year. I have a company, so I appear to be earning much less, but we're still well and truly astromomically above the level of servicability for the loan on this property.

So we're now faced with the very real possibility of not being able to finance the apartment.

I know I could get finance through Pepper Homeloans. However, with 1% application fee, 3% interest premium (7.99%), and 3% break fee, it adds up to a total cost of $46k in the first year!! And then on top of that, when we go to refinance next year, we may still be faced with another LMI of $11k.

It seems grossly unfair that because David Jones decided not to pursue us adequately for payment of the store card, it's now preventing us from buying our home or costing us up to $57k!.

We have an application in with Westpac at the moment. We've provided a letter of explanation about the DJs card, but I'm not holding my breath. We expect to hear back tomorrow, but chances are I'll still be desperately trying to find a finance solution tomorrow night.

Can anyone suggest some options for me?
My broker is probably going to try St George next, and then we're onto the highly undesirable non-conforming lenders like Pepper.
He is urging me to try to scrape together a 20% deposit. This will open up many doors that are currently closed to us as it will take mortgage insurers out of the equation. He has recommended I try to take out a business overdraft / loan for $50k and use this to bring my deposit up to 20%. I'm not sure how successful this will be because they're going to see the applications with ING and Westpac on my credit report and it may affect my overdraft application.


Here's the full financial details:

Income:
Me: $120k gross, but actually only showing about $40k on my 07/08 tax return. My business will save $40k in rent once I buy the place, so my income willincrease accordingly. (I'm a web programmer / consultant)
Partner: $110k gross, with bonuses up to $100k+. (she's an investment analyst)
We've both been continuously employed since uni. Me: 14 years, her: 10 years.

Deposit:
$130k currently (plus another approx $16k before settlement)
$60k of the deposit in made up of gifts from family/friends.
I can show genuine savings of $60k on bank statements over 6 months. However, I stupidly let this accrue in my business account, living off my partner's wages, so it's a slight grey area for lenders

LVR
Will be 86.21% at settlement, taking into account stamp duty and LMI of $41k total.


Please any help would be greatly appreciated. We have a strong connection to this property. We've been renting it for 4 years and have many friends in the area. I work right next door and my partner works only a 15-min walk away. We have great plans for increasing the value of this property as we've had a long time to understand how it could be improved. So I really want to settle on this one.

 

[Kristine..]

Hi Azaram

Welcome to the Forum!

How much was the default and when was it paid?

This will have a significant bearing on whether the default can be accommodated by the lender or their insurer

Regards
Kristine

 

[Rolf Latham]

Hiya

In times where LMI providers are like car insurers that will ONLY insure your car where you leave it in the driveway, its NOT just them we have had deals knocked back at 40 % lvr because a client had an energy default 2 years ago ( 550) , and a commercial business default due to a dispute some 5 years ago ( 1300).

While I understand your concern, and deal with this sort of stuff on a daily basis, if you take out a libility, and then move without advising the lender , you may even be listed as a "clearout", not just as a default which can be seen to be worse.

Have you pulled a copy of the credit report ? This may help your direction.

Incidentally, why was ING chosen as a lender ? From the below WBC is a much better fit from a client profiling point of view.

ING use Genworth, which is the same as many other lenders, so that will exclude a bunch of lenders.

Gen savings in biz accounts ( im assuming company or trust ?) for most lenders isnt grey, many dont accept it. Its not logical, but they dont accept for the same reason we have a trust or company in the first place, in that its a separate legal entity.

ta
rolf

 

[azaram]

Hi Guys,

Thanks for the replies so far.
The debt was for $3500, and yes, unforunately it was listed as a clearout. I'm not sure why, because her previous address was her parents' address and that's why she didn't make an effort to advise every single company she'd dealt with. It was paid as soon as we discovered the default, which was only about a week ago

Yes, we've pulled a copy of the credit report and now have Veda alerts on both our reports so we can see when anything changes.

I'm a bit worried about that clearout thing now. I didn't realise that's what clearout meant and that it was seen as being so severe.

Re the gen savings in biz account - I'm the sole director, and I've since transferred the money to my own account anyway. So legally the money is mine, but I can show it accumulating over time in the business.

Re choosing ING. Well initially the ING BDM had tentatively approved us for the REF, which would have saved us $10-11k on LMI. It did bug my a little that they had no offset account, but at the time of the application I wasn't aware of the tax implications of making extra payments with redraw vs using an offset account if you wutn it into an IP later. I know now, so I'm pretty keen to get an offset account if possible.

 

[Edmond Dantes]

Have you pulled a copy of the credit report ? This may help your direction.

How can I get a copy of my credit report? I'm confident it's clean, but reading this made me wonder if I forgot to pay a bill

 

[Propertunity]

How can I get a copy of my credit report?

http://vedaadvantage.com.au/personal/au_mycreditfile-landing-page.dot

 

[tobe]

2 options,
try an 80% lvr loan, may have a better outcome but in the current environment I dont like your chances.
get a smaller loan and property in just your name, not your partners (some lenders only need one years tax returns for s/e applicants) and start to build equity there while you wait for the default to clear/ build up a larger deposit.

After a year with a good repayment history and equity build up, your chances of having the default overlooked are much higher.

Its a shame, but in the current environment you have pretty much buckleys of a high lvr o/o loan with your partners default.

By the way, is your broker still returning your calls? Or has he cut and run?

 

[Rolf Latham]

Hi Andrew

Many brokers have the service in house for their clients. Your broker may have it

ta
rolf

 

[Spectre]

are you purchasing it thru a real estate agent or a private sale - since you're the tenant.
i.e. are you getting it below market value

and option 2 may be to hit relatives up to use their equity in their house for the 5% you're short and pay that back over a rapid timeframe

 

[azaram]

By the way, is your broker still returning your calls? Or has he cut and run?

He's still working hard for me as far as I can tell.. I think he believes we are strong applicants and seems confident that we'll get a solution somehow.
However, it's at what cost which is the real concern for me. Eg $57k or the property, which is an incredible buy and I've been wanting to buy it for a while.

You guys are starting to make me really worried about my prospects. I can't believe such a simple thing that was caused by a third party can affect us this drastically.
I'm REALLY annoyed at David Jones for doing this to us. I almost feel like I should be suing them.

 

[Spectre]

azaram
am i reading this right that there was 3500 owing on this card for "X" years and nobody thought to pay it back... ?

 

[azaram]

Spectre,

It's through an agent. However, we've negotiated a price before it hit the market, so I believe we got is a little below market value (agent across the road thinks he could sell it for $800k+.. I don't own it ATM so there's no reason for him to inflate his estimate).

Yes, relatives are still a last resort.. I also have some wealthy friends. I helped build up a business that is worth hundreds of millions now. I also have another friend in the same business who isnow worth $50-100mill+, who has already given me $30k without batting an eyelid.
I hate asking people for things though. I COULD possibly get my partner's parents to go guarantor. They were initially not comfortable with that as we're not married. However, since this is all kind of my partner's fault, maybe some grovelling is in order.
I COULD also hit up my friends for more money.. However, I really don't like doing that.

It's starting to sound like my prospects aren't great even even I did go 80% or less LVR.. I'd hate to be hitting up family/friends for money and then still getting rejected. It's embarassing. We're otherwise reasonably successful and financially secure.

 

[azaram]

azaram
am i reading this right that there was 3500 owing on this card for "X" years and nobody thought to pay it back... ?

Yeah.. we didn't know about it. Seriously..
Moving to sydney ang changing jobs etc. I guess we just had other things to worry about. Also, being that all her mail would still be going to her parents there was no reason to think that there was anything outstanding because surely we'd hear about it..

 

[Spectre]

if its a private sale and favourable purchase - get the thing valued upfront rather than wasting your time with banks who are going to value once credit decision is done.

Examples - nab, cba, anz. You might get an 80% lend off the bat and then no LMI.

we did a 1700 default thru cba the other week - unpaid but with a letter. but no lmi.

 

[azaram]

we did a 1700 default thru cba the other week - unpaid but with a letter. but no lmi.

That makes me feel a little better. I'm sure the mortgage insurers are the problem here. I'm going to talk to my partner tonight about the fact that we NEED an 80% LVR to get through this.
She'll be off grovelling to the parents and possibly friends.

We can pull it together. I'm just really embarassed about the situation. I have friends with far less means than us getting home loans without issue. Here we are, well respected in our chosen fields, having to grovel for money just to finance a place which is less than a third of our combined net income to service.. Really embarassing.

 

[jrc]

Yes, it's always someone else's fault. You're blaming DJs for not chasing, I get blamed by customers for taking court proceedings against them so that they can't get finance

 

[azaram]

Yes, it's always someone else's fault. You're blaming DJs for not chasing, I get blamed by customers for taking court proceedings against them so that they can't get finance

Wow, you sound like a great guy jrc

Well when the ramifications of not affording someone the simple courtesy of simply making a call to find out why they haven't paid a biil rather than lodge a default is (in our case) $57k, I think that it is somewhat negligent of the creditor to not do so. I'm not sure what world you live in, but that seems perfectly reasonable to me.

Look I'm not going to sue DJs. I'm not that sort of person, and I'm not here to play a blame game. It's pointless. My focus is on getting the finance that I need. I'm simply airing my grievances in the hope of getting some constructive feedback and maybe some innovative solutions to my problem.

 

[Dragon]

I recommend talking to David Jones.

If you explain you were not contacted and it has affected your credit rating, they may consider removing it from your report .....yes... they CAN do that.

Once it's removed, the insurers will have no issues.

I am surprised that they won't consider it with a good explanation, but then again, they do seem a little inconsistent with the ones they approve for a an exception.

I have found more success if there are other mitigants like a good income which you have advised.

Please keep us updated.

 

[azaram]

if its a private sale and favourable purchase - get the thing valued upfront rather than wasting your time with banks who are going to value once credit decision is done.

Yeah I have been considering getting another valuation for the banks. However, I don't really know which one to go with as I don't know which lender I'll be eventually going through.
The way I understand it is that each lender has its own panel of approved valuers and there isn't much crossover between the panels. I got a quote the other day (from NPV?) for $695. That's a pretty hefty fee, but their service sounds awesome. ie they do a lot of extra legwork to find out what's happening in the market beyond the settled properties in RPData etc - talking to agents and getting details of poerties under offer or in settlement.
With the market presumably on the way up again, that 3 month lagtime could reveal much better valuations than the databases.
They also have no extra fee for reassigning the valuation over to a lender.

Not knowing what lender I'll be going with makes it hard to choose a valuer though.

 

[azaram]

If you explain you were not contacted and it has affected your credit rating, they may consider removing it from your report .....yes... they CAN do that.

Yeah I already tried that. My partner plead with them over the phone and was even in tears. They wouldn't budge though and stuck to the legal line of they can only remove it if it was placed there in error.
In my opinion, it IS an error if they failed to contact us, because we were far from uncontactable.

Anyway, that's their perogative and there's nothing more I can do about that.