Using Rental Income

[smallbuyer]

Hello,

My friend was telling about problems he was having. He was looking at getting a construction loan soon however when he rang up some banks (CBA, ST George, NAB and another one or two) he ran into a few problems with his rental income. He has a number of properties already but some he leases himself, some he collects cash from some of the tenants for. His rent is quite a bit more than his pay from work which probably doesnt help.

He said they wouldnt give him a really straight answer but some seemed to indicate they wouldnt count the rent if it wasnt with an agent?? Has anyone had similar sorts of issues as he is very recuctant to apply for a loan unless he is sure of his income being counted.

Another interesting thing he mentioned CBA seemed to want a huge amount of paperwork, all his savings account statements , all his other loan statements heaps of other stuff.

A rather disturbing thing he mentioned was they were talking about increasing the repayments on all his loans for their calculations, adding about 1.5% to the interest rate and making them P&I.

Luckily he only rang the bank to ask questions not apply or he would have 4-5 hits on his credit record and 0 loans and would be hard pressed to get one after that.

Have they really tightened things up this year as i dont remember any of these things being an issue the last loan i got.

Cheers,

Smallbuyer

 

[Rolf Latham]

HI SB

Your friend may be well served by using a broker.

Most lenders will accept other forms of rental income verification

A current lease
Bank statements over some months
Tax rtns
etc

Obviously they wont accept pictures of cash in brown paper bags

If your friend is highly rent reliant to service debt, certain lenders are much better than others

On the other docs, some lenders dont want existing debt verification, some do.


ta'rolf

 

[Mick C]

Just adding on from ROLF.

.

Another interesting thing he mentioned CBA seemed to want a huge amount of paperwork, all his savings account statements , all his other loan statements heaps of other stuff.

That's normal. Not just CBA...You need to show ALL asset, Liability , Financial products and Income

A rather disturbing thing he mentioned was they were talking about increasing the repayments on all his loans for their calculations, adding about 1.5% to the interest rate and making them P&I.

This is called the sensitivity rate/loading- which all lenders will add/have on their calculation.
Having said that all lenders have different sensitivity rate/loading ranging from 1.2-2.5% Also some lenders will be happy to accept a 0% sensitivity rate/loading if you take up a fixed rate.

Regards
Michael

 

[The Y-man]

Small Buyer,

Does the friend declare the rental income on his tax return or is it "cash in hand"?

The Y-man

 

[smallbuyer]

Hello,

Thanks for all your replies.

I am curious how much luck even brokers have had getting straight answers out of banks these days. What i hear from a broker friend of mine is they tell you one thing and then when the deal goes up they do something else quite a lot these days especially for slightly more complicated deals.

Re my friend i think its all declared on tax return so maybe that's an option but sometimes those may show other things that will just confuse the lender

With showing docs most of my own experience has been you only need things directly related to the loan ie statements from loan being refinanced, savings account only if u need to show savings, rates/titles from relevant properties etc not every statement from every account


This sensitivity loading i seen it heaps before but i though its just for the loan you are going for with that particular bank, i thought they usually would just count other things at what you pay now?

Damn i didnt think there was anything cash in brown paper bags couldnt fix

Thanks

Smallbuyer

 

[Mick C]

This sensitivity loading i seen it heaps before but i though its just for the loan you are going for with that particular bank, i thought they usually would just count other things at what you pay now?

Smallbuyer

Probably heard this before; it depends on which bank your dealing with.
Some will load ALL the rates + the new rate...some will accept the currently monthly expense as per amount.

Regards
Michael

 

[Peter_Tersteeg]

Re my friend i think its all declared on tax return so maybe that's an option but sometimes those may show other things that will just confuse the lender

Tax returns with rental income don't really show what the lender asks for. They show how much money you received, now how much money was paid by the tenant. You'll have heard the banks take 60%-80% of rental income. Would you prefer they use what's paid by the tenant or what's received by the owner?

With showing docs most of my own experience has been you only need things directly related to the loan ie statements from loan being refinanced, savings account only if u need to show savings, rates/titles from relevant properties etc not every statement from every account

Generally true, but the CBA does want a statement for every loan you've got. It's a pain in the neck, but there are plenty of other lenders who are just as compeditive that don't need it all. Document requirements vary from one lender to another.

This sensitivity loading i seen it heaps before but i though its just for the loan you are going for with that particular bank, i thought they usually would just count other things at what you pay now?

Again, it varies from one lender to another. A side effect of this is there's often a huge variance in how much you can borrow from various lenders. It's not a bad idea to do a bit of forward planning with your broker to determine which lenders might be more useful at what stages, that way you can adapt your portfolio over time.

 

[smallbuyer]

Thanks for all your posts.

So do the brokers on this forum think, compared to the past, banks talk more BS and don't give a straight answer or say the rules are X before the application has been sent to them and suddenly the rules are Y after.

Cheers,

Smallbuyer

 

[Rolf Latham]

Thanks for all your posts.

So do the brokers on this forum think, compared to the past, banks talk more BS and don't give a straight answer or say the rules are X before the application has been sent to them and suddenly the rules are Y after.

Cheers,

Smallbuyer

Hi SB

I think most lenders rules are a little fluid, but generally transparent.

Its where borrowers think that a 97 inc cap lmi deal should be assessed at the same risk tolerance level as a 60 % lvr that differences arise.

It doesnt work that way, lifes not fair, and I personally find that most lenders policy is consistent,

However, still, we need to be concerned who interprets the policy on the day

ta
rolf

 

[Mick C]

As ROLF said, place a loan under 80-85% LVR - and you will get a straight answer.

Since there's really only 2 major LMI companies + some internal LMI within the banks- the LMI does not need to "fight" for your business, end of the day they are a risk management company as well- insurance.

Regards
Michael

 

[Marty McDonald]

I find the policy of lenders consistent at the moment but as Rolf said it can depend on the actual assessor and the client. What I mean is you can have a situation like your friends that is really hard to verify which makes setting the deal that much harder.

Had one last week that I had to let go as i couldn't satisy myself that the info provided was true / all true. My instinct said it wasn't the whole truth. In this case the borrower was a butcher paid in old school pay packet every week (hand written) plus employment letter and tax assessment notice. Lvr 50% purchase. Then asked for group cert and the story changed. Hmmm. Turns out start date of employment as declared on employment letter was wrong and on it went bs after bs excuse. Eventually I just called it and said sorry I can't trust what you are telling me.

What I am driving at is it is not always clear from minimal documents provided what the
true story is. Over the last few years lenders have become much more concerned with being 100% sure what they think is the story is actually the story. Sometimes as with your friend a fair bit of documentation is required to be 100% sure, with other borrowers virtually no paperwork is required at all.

 

[smallbuyer]

Thanks for all your replies. Would be so much easier for everyone if banks would asset lend @ 80% @ a decent interest rate

 

[Aaron_C]

Thanks for all your replies. Would be so much easier for everyone if banks would asset lend @ 80% @ a decent interest rate

You can if you go lo-doc as the proof of income is very limited. But you have to pay some LMI.