Need Broker Advice

Hello all Brokers,

Here is our Situation.

We are trying to get $80,000 cash out of our Equity in our house.

House value $675,000
We Owe $180,000 ( repayments are around $256 but we pay $400)
Combined income $110,000 -Im PAYG /Wife works from Home
Dependants = 4 - For one of the dependants i pay CS of around $15k per yr.

We have No credit cards, Personal loans, debt other than mentioned mortgage.

Should we have any Issues getting these funds? My impression is banks get funny over 50k?

Not sure if i have left anything out,uum think its all there.

Any help or advice much appreciated from a couple of newbies

 

I can't see there being a problem with that from a quick look. Most lenders would be fine with that cash out amount - which bank are you with?

 

Hi Jess<

We are with NAB and they are making us jump through so many hoops and we dont understand why with so much equity.

 

The banks will be reluctant to give you cash because you could just gamble it away. What are you using the money for? Could you show the bank evidence on what it will be used for - such as a contract of sale for another property.

Or, borrow it in 2 stages.

 

A bit more info would be needed for the affordability calculations, but overall it shouldn't be too difficult. Your equity position is quite strong which is heavily in your favour.

$80k cash out shouldn't be a big deal with the NAB given that the total LVR will be well below 80%. I suspect the problem lies in what you've indicated you'll do with the money. Lenders are fairly specific about this and they are getting tighter. The end game needs to be laid out properly to make them want to approve the loan rather than to make them wary.

 

What hoops specifically?

It might be to do with your wife's SE income - if it's inconsistent or relatively new, they might look for more information for assessment.

 

We told the bank that we where going to get a new car for $50,000 and the other $30,000 for the house as we bult the house 5 years ago and we just wonted to finish of some things

 

This shouldn't be too tricky. Like Jess, I'm curious as to specifically what hoops you're being frustrated by.

Keep in mind that the NAB, like any other lender, will require a full application for this. This means full income verification and when there's a self employed component, this means quite a bit of paperwork. It's annoying especially when you're already a customer, but it is what it is.

The best thing is to give them exactly what they ask for. If you're not clear what they want, have a conversation. It's also frustrating on the other end to ask for 2 years of tax returns only to receive assessment notices.

 

What have they asked for?

 

Thats exactly the hoops we are jumping through Peter T, we found it fustrating having to supply 2 yrs of the wifes income as she has her own home business, and its only new. Didnt realise this was normal.

So much to learn in this game but they keep changing/updating the rules. We feel even though we have been paying more than needed on our mortgage in the last 5 yrs we are still seen as a potential risk.

always learning, thx for the advice everyone.

 

2 years of self employed income isn't anything new, it's been around for decades. Whilst many people argue that they can prove how much they earn via invoices, this doesn't tell the bank how much they spend to earn that much. Tax returns are required to demonstrate this and 2 years of paperwork shows consistency.

 

Ok, Another question is that we have had three kids in the last 3 yrs and have had a rude awakening that this has affected our borrowing capacity more than we anticipated. Have lenders been tightened the belts on dependants recently?

 

Part of the calculations in your affordability is your 'cost of living'. Lenders assign minimum figures to this consideration. It stands to reason that the more children you have, the more money you spend on things like groceries, education and other day to day expenses. This in turn reduces your disposable income which reduces your borrowing capacity.

Surprising that you find this as a, "Rude awakening". The amount lenders are willing to advance you depends on your financial circumstances and as those circumstances change, so with the amount they're willing to lend. Most people do find that having children has a significant effect on their financial circumstances.

Whilst many lenders have recently reviewed their policies around these figures recently, the policies have always been there. The policies will be further updated as the cost of living increases (if only through inflation).

 

Doesn't sound like the equity release is the issue - it's your borrowing capacity.

If your wife can demonstrate one years financials then you might be better off looking into ANZ, CBA or STG.

Cheers

Jamie

 

Did you discuss the implications of having kids on borrowing capacity with your broker? This is something I cover with clients early on because, as you've discovered, it can have a fair impact on borrowing capacity.

 

While it would be nice if clients included me in every decision they make sometime I realise it's not my place!

Seriously though you can tell it's getting tight out there when lenders start making things too hard and start declining loans. I have had 3 people contact me this week with declined loans from other brokers / direct with the bank. Things like mat leave etc which were OK last week but not ok today. Also had one decline for existing client for same reason which is very disappointing.

 

I was going to say that I don't think it's really appropriate to discuss clients sex lives with them. Steve might be able to go there (based on his TV appearance), but I don't think I can get away with it at my age.

It's probably more about letting clients understand how lenders assess affordability and what contributes to how much the lenders are willing to give. Kids and employment circumstances are only some of the considerations in what's a very long and complicated list of business rules that varies from one bank to another. If you want to understand it all, become a broker (and try to keep up). Suffice to say that any change in your assets, liabilities, income or expenses in any aspect of your life will have an effect on your borrowing capacity. You're not the same person you were 3 years ago, your borrowing capacity will be different.

There is a lot of turmoil in finance right now and things are getting harder, not easier. The changes are being targeted at investors but they are effecting everyone to some degree. What worked last week may not work next week. Good advice becomes more important than ever before. If you believe finance is a DIY job, you are rolling the dice to some degree.

 

It's definitely a fine line. I'm certainly not asking if my clients are getting any.. but I do mention the implications of adding a dependant or three to the servicing calcs so they have the info they need.

And yeah, it is causing a bit of chaos at the moment with the tsunami of changes.

 

I think this is something which is important to bring up not just for serviceability but also especially when the female applicant is the main breadwinner just to explain the cash flow purposes when things may get tight on one income.

 

I have a bit more respect for my clients general common sense. Not always warranted granted.