A Quick Overview
| Details | Description |
|---|---|
| Customer Goal | Refinance to cash out equity and use it as a deposit to buy a new property. |
| Problem | The client was looking to cash out from equity built on his residential property to purchase a new investment. He was a self-employed contractor but had not lodged a full tax return yet. |
| Loan Amount | $460,000 (Refinance + Cash Out) + $400,000 (New Loan) |
| LVR and Term | 80%, 30-years loan term |
| Income | $240,000 annually |
| Solution | A low-doc loan solution and a lender that considers large cashouts. |
Refinancing A Home Loan As A Self-Employed Borrower
Justin was looking to purchase land and build a home. We had already helped Justin get approval for a $349,000 home loan. Now, he wanted to use the equity he had built to refinance and get cash out. He would use the cash out as a deposit to buy a new property.
Justin was confident that he could easily get approved for a home loan since he’d done it once before and was earning well. He had also now been an Australian Business Number (ABN) holder for 24 months, boosting his confidence further.
Little did he know that being self-employed for two years but not having his latest tax return would make things a bit complicated.
The Challenges Of Being Self-Employed: Low-doc Home Loan
There were some problem areas that needed to be addressed.
Justin has been working as an IT professional for two years, but his company was registered for one year and 11 months. This was a problem because most lenders require borrowers to be self-employed for at least two years.
As proof of income, Justin had to provide up-to-date tax returns. He did not have full tax returns, so he had to look at low-doc loans.
Justin was 39 and had plans to retire at the age of 65. With less than 30 years in the workforce to pay off the home loan, lenders would be harsher with their assessments.
He was unaware of a default on his credit file. His credit report also showed a late repayment on his personal loan and a valid explanation for this needed to be supplied immediately.
Justin also needed to settle everything as soon as possible, as he had plans to go abroad; however, upon liaising with his solicitor, he discovered that the agent handling his files was on leave for two weeks. This left him exasperated and disheartened.
Waiting For The Right Time To Apply
Justin needed expert help with this case, as many lenders view self-employed borrowers as higher risk. One of our brokers, Ajar, specialises in low-doc loans and immediately knew which lenders to consider.
Ajar and his team got a pre-approval for Justin but it had a condition that the applicant needed to have an ABN for 24 months to make it a formal approval. Justin’s ABN was just a month shy of the minimum requirement, so Ajar advised him to wait one month before proceeding. Having the ABN for at least two years would also open up more loan options. If Justin had gone ahead without waiting, his rates would have been higher.
For the default and late loan repayment, Ajar first reached out to Justin to ensure there was a valid explanation. It turns out the loan default had resulted from an old business partnership that hadn’t worked out well. It had been a while since Justin had left so he was unaware that it was in his name. He quickly paid it off. As for the personal loan, it was a one-off late payment due to issues with his direct debit account. Ajar reasoned well with the lender about why the default and late payment were there and got a green light from them.
Ajar also requested that the client have a good exit strategy to demonstrate that he could repay the loan even after retirement. This was important in his case, as he had less than 30 years until retirement. Some lenders would be willing to consider applicants in Justin’s position only if they have a good exit strategy.
Ajar had good working relationships with many lenders. Because of that, he could run Justin’s scenario by the business development manager of the lender of Justin’s choice, allowing him to check whether the application was acceptable to that lender before applying.
Feeling the urgency to make the settlement quickly, Ajar reached out to Justin’s solicitor’s firm and requested that it appoint another person to handle Justin’s file. Fortunately, the firm agreed, and settlement was changed to Justin’s preferred date.
Conclusion
Ajar knew from the moment he got the case where the areas of improvement could be and helped determine that a low-doc loan was the path to go down. He requested relevant documents like an accountant’s declaration of Justin’s income and a good exit strategy to strengthen Justin’s case to lenders. He made sure to address areas that could be an issue. Justin was grateful to Ajar for getting him out of a pinch by shifting the settlement date.
To add the cherry on top, Justin got a prime loan product for both his refinance and investment loan from a specialist lender on our lender panel. He also got $125,000 cash out from his refinance to put towards his new property investment valued at $500,000. This meant he avoided paying Lenders Mortgage Insurance.
Justin’s Loan Structure:
Investment Property Loan: $400,000
LVR and Term: 80%, 30 years
Rate: 6.24%
Refinance + Equity Cash Out: $460,000
Term: 30 Years
Rate: 5.59%
There were bumps along the way. With Ajar’s help, Justin was able to transverse smoothly through his refinancing journey and purchase of new property as a two-year self-employed applicant.
Looking to refinance as a Self-Employed candidate? Or feel like you need an expert’s touch to make your application better? Call us at 1300 889 743 or complete our free online assessment form.