Advice for FHB couple? 95% LVR, guarantor loan, broker ghosted us, help!

Hi everyone! Long-time lurker, first-time poster here.

My partner and I (both 33, no kids) are looking to purchase our first home in Melbourne. We want to get a P&I loan on an owner-occupied property, most likely a 2-bed apartment in an established small-scale block (ideally one that’s a couple of decades old) within 10km of Melbourne’s CBD. We’re looking to buy something that is liveable, but that we can renovate and add value to.

I've been doing quite a lot of research on the topic, including combing these forums for tips and advice from people much more experienced than I. We were working with a broker, but weirdly he just seems to have ghosted us, despite numerous follow-ups and promises (from him) that he would get back to us.

At present neither of us has any outstanding debt (bar my partner’s HECs), nor any lines of credit. Historically my partner wasn’t great with his spending, however, and made lots of credit enquiries, but he has really cleaned up his act since mid-2018 – his credit now hovers between ‘good’ and ‘very good’. My credit history has always been ‘very good’. My partner is an Australian citizen, but I only have PR so annoyingly we’re not eligible for the FHLDS (though I can apply for citizenship from Feb, but lord knows how long it will be before my application is actually processed).

We are quite thrifty and have minimal outgoings, and on average we probably save $3,000/month. We do have some assets such as shares, a car etc, and we are looking to get a guarantor’s loan through my parents (who are Australian citizens). I have had my ABN since May 2017 and have largely been self-employed since then, though occasionally I do short contract work. My partner works FT for local council, and has been in the same industry since November 2016.

At most we are looking to spend $580k on an apartment, though ideally we will spend between $520-$550. We have around a $34,000 deposit (our current savings total around $39,000, but obviously we have to account separately for all the legal fees and pest stuff) which means we will have at least 5-6% deposit, likely more by the time we actually find a place and settle etc.

Do you think we will get approved? And are there any particular banks you’d recommend for our situation? In terms of our strategy, would it be better to stick with what I’ve outlined, or go for a cheaper one-bed apartment (that measures more than 50m2) where we would have a better LVR and more chance of approval? Or is it better to wait until we have more deposit saved and have a better chance at approval for the two-bedder we actually want? If we can get on the ladder now but the loan terms are poor (because of our financial situation) is it better to suck it up and go for it, but refinance in a couple of years, or to wait until we’re in a better situation financially and can get better loan terms as a result? My partner is also contemplating a move from the field of engineering into computer programming – terrible idea? Sorry, a lot of questions I know! But if you have any thoughts on any of the above queries I'd love to know. Thanks for listening

 

I think you're overthinking this - just get a better broker. You need to start with that. There are plenty here, I've personally used @Shahin_Afarin for a while and he's exceptional. He's in Sydney but I'm sure he's ok taking on interstate clients.

If you want someone more local someone here should be able to make a recommendation.

 

Most of these questions can be answered by a good broker. Guessing will just make you more worried.

 

Overall this looks a little tricky, but not too difficult. The considerations you'll need to make before purchasing a property:

* The biggest challenge is probably deposit. There are some lenders that will capitalise the LMI, but the rates are quite high. So you'll need to cover 5% + LMI + purchase costs. As a rough guide, this comes to about 8.5% of the purchase price.

* Being self employed, you'll need to provide the last 2 years of tax returns. That shouldn't be a problem, but the figures will likely need to be fairly consistant and (in combination with your partner) demonstrate enough income to be able to afford the property.

* As a result of the pandemic, most lenders are asking for additional income verification for people who are self employed. Make sure you keep your BAS up to date. It might also be benefical to have a 'trading' account where everything work related goes in and out of a single account. This can avoid things getting very messy with some lenders.


Personally I'd avoid a 1 bedroom appartment. They're cheap because they have a limited market. You'd likely want to upgrade very quickly and 1 bed's don't sell very well. Probably better to save a bit longer and buy the property you actually want.

 

If you're using a guarantor loan then your Loan should be as follows;
Loan 1 - 80% LVR
Loan 2 - 20% Guarantor loan + costs
Minus whatever cash you would be putting towards the purchase.
This way you avoid Lenders Mortgage Insurance altogether and get a better interest rate too. Not having mortgage insurance increases your likelihood of approval
Some lenders do security guarantee loans better than others, some lenders don't do them at all.
Suggest engaging a good mortgage broker asap

 

Thanks Lindsay, you're right, I totally forgot that with a guarantor's loan we actually go down to 80%LVR.

 

Should be pretty straight forward, I think your chances of approval are good - subject to serviceability of course

 

Thanks so much for your insight Peter – you've confirmed what I was thinking re; one-bed apartments, so we'll definitely nix that idea.

Lindsay who replied below rightly corrected me on one thing – in my haste I stuffed up part of my explanation... it would be 80% LVR as we are intending to go for a guarantor's loan through my parents. Sorry for the confusion!

 

This makes it a lot easier, it effectively takes away the need for a deposit.

It also makes some of the other requirements a lot easier. There's a few lenders that will still want the same self employed period, but will rely on the most recent tax return, rather than the average of the last 2 years.

 

Thanks Lindsay

 

That's great news, thanks again Peter