Type of Client: Self-Employed Couple
Type of Loan: Owner Occupier Loan
Success Factors
The deposit solution was to use equity in the existing home + available savings, which put the client in a strong position demonstrating genuine savings
Finding the right lender which accepts a high loan amount (or a cap) using LMI. Understanding the financial performance in the start-up period and arguing why the bank should use only the first full year’s financials.
Situation
The clients, a married couple, started their business. The male applicant owns an owner occupied property while the female applicant owns an investment property. The properties are mortgaged to two different banks, with LVR of 63% and 71% respectively, or a combined loan amount of $1.1M outstanding.
- The couple wanted to achieve a $2.5M purchase price for a new home in the North Western area of Sydney. When they reached out to us, they had $437K of total business and personal savings.
- They also wanted to refinance the owner occupied property to the same bank they are applying for the new application, and convert it to an investment property once they move into the new house.
Challenges
There were a few challenges to overcome to achieve the goals in this self-employed loan scenario:
- Due to the business still in its start-up stage, first year financials only had 3 months of income with higher than normal expenses recorded. It was necessary to convince the lender to consider second year, the first full year in trading, in isolation
- While still in the start-up year the clients needed to preserve as much savings as possible. Many lenders have a loan amount cap on LMI loans that they would be willing to accept.
- We identified a lender which allowed a high enough of a LMI loan cap. As part of the refinance of the existing home, we obtained an additional equity loan to provide the clients with $150,000 in extra deposit towards the new home, so they could preserve savings for growing their new business
- We refinanced their existing home loan which would be converted to an investment purpose but paying interest only – the purpose was to maximise cashflow for the new home loan. To get the lender comfortable with disregarding year 1 (and considering year 2 in isolation), we presented the year 3 year-to-date financials and last 2 quarters’ BAS to show that it is already an 8% uplift in income.
Result
The clients achieved a 90% LVR loan (including LMI) towards a $2.5M purchase price pre-approved. The clients are able to make an offer to a property they are interested in.
The refinance of the existing home loan was approved with the same bank, an investment interest only loan, plus a $150,000 equity loan approved the settlement of which was to happen before the completion of the new home.
