Cristina and daughter, Fae (not their real names) are both first-home buyers. Mum Cristina is in her mid-50s and daughter Fae is in her late 20s. They’ve been renting most of their lives and noticed that their weekly rent has been rising. With all the grants and schemes that the government is offering, they realised that they are better off buying their own apartment instead of wasting their money paying their landlord. Besides, the monthly repayment of the loan they are seeking will only be slightly higher than the amount of rent they are currently paying.
With a purchase price of $650,000, Cristina and Fae requested a loan of $617,500, making the Loan-to-Value Ratio (LVR) 95%. Under the Home Guarantee Scheme, they don’t have to pay loan mortgage insurance even if they only have a 5% deposit. They had savings of $35,000. There was no stamp duty to be paid if the purchase price was $650,000 or below (NSW FHBAS).
Action Taken:
The family’s financial situation was carefully considered for loan servicing. Cristina worked as a sole trader with a weekly income of $1,500. Although her ABN tenure was just 2 weeks shy of the 2-year requirement for self-employed applicants, the application was accepted by the bank as an exception. Despite her age, her potential to earn more and her ability to work past 70 years old were considered. Fae works as a teacher and earned a salary of $85,000.
As an exit strategy for Cristina, the goal is to work until she is 70 years old. The broker has discussed with Cristina what her repayments will be if she were to pay out 50% of the loan amount in 15 years. Cristina is confident that she can manage the repayment. It helps that the bank they applied for has a relaxed retirement policy as long as there is a rational exit strategy in place.
Fae, being the younger applicant, had a goal to pay out the loan within 20 years or 25 years at the most.
After submitting the application on the 1st of July, the mother and daughter received conditional approval in three (3) days. They quickly found their dream property 2 weeks after. It was a 2 bedroom, 2 toilet and bath with a car park in a suburb close to where they both work. Because this is a Home Guarantee Scheme application, Cristina and Fae filed their tax returns on the 1st week of July, as advised by their broker. They received their Notice of Assessment two (2) weeks later and were able to provide this document to the bank prior to the bank issuing the formal approval. The HGS includes an income test, which is assessed by lenders using a Notice of Assessment (NOA). The NOA has to show that the combined income of Cristina and Fae is below $200,000 to qualify for a spot in the Home Guarantee Scheme.
Cristina and Fae both wanted an early settlement and because the banks to which the loan was applied had an efficient process in place, the settlement was booked on the 15th of August 2023.
Because the application falls under the Home Guarantee Scheme, Cristina and Fae were able to secure very competitive rates for their home loans. They fixed 50% of the loan and the rest was variable. The variable portion will allow them to make extra repayments on their loan, thus aligning with Cristina’s goal of paying off her loan sooner.
The mother and daughter’s strong employment history, capacity to repay, and well-thought-out exit strategy made their loan application a success. With their dream home secured and a bright financial future ahead, this mother and daughter story stands as an inspiration to all first-home buyers seeking to achieve their homeownership dreams.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, self-employed loans, alt doc loans, car loans, personal loans, and loan protection. She has offices in Sydney, Melbourne, and Manila. If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au.
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