[3 min Wed finance series] A case study – why you need access to many lenders
When experienced property investor Joe Blob agreed to buy a block of land, he didn’t expect the land’s mining-town location to make it difficult to secure finance. After failing to find a lender who could help him, he visited a mortgage broker who found just the right mortgage for his needs.
Joe Blob, an experienced property investor and engineer who works in mining, agreed to buy a block of land in a mining town with pre-approval for finance directly with a lender. However, when it came to settle 18 months later, the pre-approval had expired and the lender had changed its policy for mortgages in mining towns, leaving Joe with a looming settlement date and no finance.
Joe applied directly to a wide range of other lenders, but kept facing the same problem. In a bind, he visited an MFAA mortgage broker just 10 days before settlement.
“The rental return is crazy in the area, around 15 to 20 per cent. But the risk is higher,” Joe’s broker said, “So most lenders have restrictions in mining towns and cap mortgages at a 60, 70 or 80 per cent loan-to-value ratio (LVR). No one was willing to finance 90 per cent of the property value, which is what he needed. By the Joee he came to me, he had a very ugly looking credit file and not many options left.”
Looking through Joe’s file, his broker noted his large income. Thinking that there was one lender she could get this deal over the line with, she started working on mitigating the sore points of his application.
“I did a big submission, but the lender does credit scoring so, with Joe’s credit file, that was something that I had to try to mitigate,” she says.
Knowing that the next hurdle – if the lender approved the application – would be gaining approval for lenders’ mortgage insurance (LMI), Joe’s finance broker worked on having LMI waived.
“When there’s LMI involved, an application has to go to the mortgage insurer for final approval, but we were able to get the LMI waived so that the lender could just approve the application based on its own policy,” she says. “So Joe saved on LMI cost and didn’t have to go through that additional sign off, which most likely would not have come through.”
Ahead of settlement, the loan was approved and finance came through, and Joe and his broker are now working on securing finance for him to build on the land.
“It took a lot of work on the application for what was really a small loan to be honest,” Joe’s finance broker says. “He was just in such a pickle, and it’s really what we do – we help a lot of customers who have either been declined elsewhere or are in sticky situations.”
Do you know each bank is limited by their own capabilities and restrictions? That’s why discussing with a broker helps as we have over 30 lenders available on our panel and each with multiple products to choose from. By working with a broker we can recommend the most suitable product that meets your needs. Contact us today to see how we can help 🙂