How one broker coordinated three loans so a young couple in search of their first family home could tap the bank of mum and dad
THE SCENARIO
Mortgages for the self-employed can be challenging due to the unavailability of suitable documentation, and as a result many brokers often put self-employed applicants in the ‘too hard to handle’ category. However, with some careful consideration and due diligence, it doesn’t have to be that way.
A young couple were referred to Origin Finance by existing clients after facing this exact hurdle. Their ambition was to buya home for around $1m that they could settle in and start a family.
The male applicant was a self-employed carpenter, which usually isn’t an issue. However, he was also embroiled in a legal dispute with a major contractor and his business activity statement (BAS) showed a massive drop-off in income at a critical time in the financial year.
As a result, two tax returns showed a disproportionately low income, so a full-doc loan was out of the question. In addition, a low-doc loan would also have been challenging as the couple’s current lender needed the last 12 months’ of BAS paperwork, and this period straddled the massive shortfall, meaning we could not demonstrate servicing. Adding to these issues, the couple did not have much equity in their current property.
However, with the ongoing contractual dispute out of the equation, the client had a good financial track record, with excellent repayment histories on their current obligations.
THE SOLUTION
To overcome these hurdles, we had to do two things: firstly, we needed to find a means of contributing more equity towards the purchase, and secondly, we had to prove the clients could service the loan.
Bringing some hope to the situation, the male applicant’s parents came forward to offer their assistance. They fully backed the couple’s dream of buying their first family home and were prepared to offer a guarantee to help them.
The parents had plenty of equity in their home and a modest loan with reputed bank. Unfortunately, that bank did not offer family guarantees, nor would it allow another bank to provide a second mortgage. This meant we would have to refinance the parents’ loan to tap into their equity.
Proving income for this was much easier as there were plenty of non-mainstream lenders who could clearly see from the male applicant’s last two BAS that in actual fact income was very strong. But finding a non-conforming lender that would also do a family guarantee was the challenge. Enter La Trobe Financial.
A few years ago, La Trobe Financial had briefed me on their Parent-to-Child (P2C ) product; it’s a bit different to a standard parental guarantee loan but serves a similar function. Rather than the young couple having a loan secured against the parents’ property with the parents acting as guarantor, the P2C would allow the parents to invest cash in a La Trobe Financial fund, which would then lend the money to their son and his wife. The added bonus was that the parents were able to determine the rate the loan would be subject to.
The first step was to refinance, moving the parents’ mortgage to La Trobe Financial, with a modest top-up loan to provide a deposit for the new home. We also arranged a $680,000 top-up to be placed in the P2C fun, ready for when that perfect property came to market. Finally, we arranged a $450,000 loan with La Trobe Financial hat was secured against the new family home.
THE TAKEAWAY
This really was a complicated scenario, and it took around eight months from the initial meeting to the couple moving into the house. Brokering the deal demanded project management skills and watertight communication so that everyone knew what was happening. We had multiple meetings and teleconferences, and I even had one meeting in a park while my son walked the applicant's dog!
However, the key component was trust. I had to be satisfied that the parents were releasing equity knowingly, but I also knew the couple wanted to move as fast as possible so they could embark on this exciting phase in their lives.
Despite the long process, it was an incredible rewarding deal. We created a solution that allowed the parents to support their son and daughter-in-law in acquiring that much-coveted family home; and, in the end, what else are families – and brokers – for?
Graeme Salt
broker and consultant
Origin Finance
