The Biking Broker Newsletter - 15th April 2011

Starting out – the nitty gritty

The follow up to The Gympie Woman Magazine April story.

There’s nothing sexy about finance!   I’m involved in finance because I love talking to people and finding out how I can help them achieve their goals through finance.

How I can help you will depend firstly on your goals and what your current situation is.

If your goals are to better your current situation, buy property, recover from an expensive divorce or build wealth for your retirement, I can help you by analysing your current situation and make suggestions on how to improve it or make the most of what you have.  This can be as simple as showing you what a lender requires, restructuring your existing debts or referring you to a financial planner, tax specialist or legal professional for further advice.

Your current situation consists of your employment, assets and liabilities.  As far as a lender is concerned,

1. Full time permanent employment is more desirable than part-time employment which in turn is more desirable than casual employment
2. Not all lenders will accept income from casual employment, but if that’s what you do, try to stick at the one job with the same employer for as long as you can.  Several lenders will take income from casual employment if you’ve been in the same job for over 12 months
3. The longer you are in any job and at the same address points to stability and a lower credit risk
4. The better your asset position the less likely it is you spend all your time down the pub!  Lenders look at asset for age. They expect older applicants to have more assets.  A young person with good assets and low liabilities such as personal loans looks good!

I’m going to outline a few steps you can take in advance to increase your success of getting a loan.

1. Save a deposit.  Obvious, but to show evidence of what the banks call “genuine savings” is the best way to increase your chances of success and reduce your Lenders Mortgage Insurance (LMI) premium.  LMI premiums are calculated at a higher rate for non-genuine savings.  Aim for 5% of the purchase price you’re looking at.  Genuine savings do not include the FHOG, tax refunds or gifts, amongst other things.  They do include savings from earnings, funds held in a savings account for > 3 months or equity in existing property. Genuine savings along with your income display your capacity to repay a loan.
2. Boost your perceived genuine savings.  If you’re renting, this expense will cease when your loan is settled, but in the meantime, pay your rent by direct debit so it shows on your bank statements.  Pay any other regular payments such as car and contents insurance this way as well.
3. Reduce the available limit on your credit card.  Credit cards attract high interest rates and adversely affect your capacity to repay a loan.  Alternatively, pay your credit card off totally each month.
4. Develop a personal budget to achieve steps 1-3 above.

If you can show a lender that you can achieve the above steps in any 3 month period, you’re way ahead of the pack!  Don’t worry if you’ve read this article and think you don’t fit the ideal borrower.  Ring me, and either I or my financial planner will set you on the path to achieve your goals!