First home for associate dentist

Success Factors

  • A solution focused approach to recommending lenders who could provide the loan amount required rather than just the lowest rate
  • Broker experience is very important especially when presenting policy exception cases, in order to have the most critical component of income treatment approved
  • Strategising the assessment to have a back up plan for the ‘worse case scenario’; managed funds to complete in light of a substantial valuation shortfall
  • Loan process experience to enable the application to be amended in a timely manner to include a family guarantee so that 100% of the valuation can be approved without LMI

The Situation

The client is a dental professional who purchased an off the plan apartment in 2016 under the guidance of her parents.

Given this was her first property purchase, she was unaware of what she needed to do to successfully settle it.

As a Graduate Dentist she was working at two clinics on a casual basis with variable income.

She had paid a 10% deposit plus stamp duty, and at the time she spoke to us in 2018, she had little savings to contribute towards settlement.

Settlement was forecasted to be due in 2019 which meant she had just over a year to save at least another $80,000.

The Challenges

The biggest challenge was in finding lenders who would accept the scenario, namely the client’s income. 

  • The client’s employment history showed no clear track record of income in that she had worked with several clinics for short periods of time due to her placement.
  • Her earnings each month were variable and were across two clinics / employers. The pay structure was different between the clinics  – PAYG at one clinic but sole trader at the other.
  • FY19 was her first full year at these two clinics so she wouldn’t have had 2 full years as required under lender policy across the board.
  • Her PAYG income was listed as commission which under all bank policy is discounted by at least 20%.

The challenges didn’t stop here.

The purchase property was in a high density development subject to postcode restrictions capping the LVR.

During 2019, the property market was going through a downturn. This posed a valuation risk and and substantial shortfall to settle unless a higher LVR could be achieved.

Our client was reluctant to ask her parents for a cash gift.

The Results

Given the foreseeable hurdles in securing a lender, we analysed different scenarios in a ‘war game style’ assessment.

We began with the worst case scenario, and we would need to have the client’s income accepted, as well as achieve the highest LVR possible at minimum cost to mitigate valuation risk.

At the same time, we provided general advice and education on how the client could have her income treated favourably by the bank.

A pre-submission enquiry was submitted to position the client’s PAYG income as a ‘profit share of service fees’ she charged, and hence should be treated as normal income and not a commission.

We obtained a policy exception to include the self employed sole trader income even though there was only 1 year of financials.

There was an eventual valuation shortfall of 18% pre settlement. We acted quickly to amend the application to include a family guarantee so that 100% of the valuation could be approved with no LMI.

Settlement occurred without additional funds to complete required. Our client is now a happy owner of her first home!

WHO TO TALK TO

Priscilla Tan
Senior Finance Broker

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