Ian Payne, Author at Money Honey

How to get a property loan in 2021? Part 1

28 January 202010 October 2021

“So what”, you might think when you have never had a problem before? If you have been aware that a lender is most concerned to know that you have:

Enough income, and
Enough deposit or equity then you should have no problem getting loan approval. Right?

Well, that used to be fine for most of us, but things have changed. A lot!

You will have heard about the Royal Commission into the banks – hard to miss it with there being so much coverage of the proceedings. The banks have been shown to be quite irresponsible and unethical in so many of their dealings with their customers.
Just to point out how much has changed, in the last year one particular statistic tells an eye-opening story.

Did you know that a year ago about 5% of loan applications were rejected by lenders. Today about 40% of loan applications are rejected!

That means that it is not just a matter of fewer people being interested in getting loans, it is even more importantly a case of so many people not being able to get loans at all.

Why? What changed?

The RC made it very clear that lenders have been way too easy to be convinced that people could afford to borrow. The area they concentrated on was “Household Expenses”. In other words how much those prospective borrowers were spending and on what.
Previously there had been a weak standard that was all too often automatically applied to incomes to guess at what was being spent. It was known as “HEM”. Even the banks were well aware that this measure was unrealistic!
In fact, many lenders had asked on applications for estimations of expenses, which usually amounted to appreciably higher spending than the “HEM” figure. That was then considered to be enough information to assess the borrowing capacity.
No evidence was looked at in the vast majority of applications.
In truth, if such evidence was looked at it was revealed that many of the applicants were spending money like water on all sorts of wasteful things, even regular gambling!
Have a look at your own statements for your banking and credit cards. Do you see items that you could have not spent your money on? If you were a lender and you saw that money was being handled in a rather casual way would you think twice about lending to that person?

If your records only show already quite responsible patterns of money management you can expect a lender to welcome an application from you. Congratulations, you are in the better half of Aussies!

What if your details are unsatisfactory?
Another aspect was the criticism by the RC of the use of interest-only loans, which would have needed lesser payments than principal and interest, so buyers need to be able to handle these higher payments.

Warning! All of this advice is general in nature and is not sufficient for you to base any decision-making on. You must discuss all relevant matters with suitably experienced and qualified people (not just looking online!).

How to get a property loan in 2021? Part 2

28 January 202010 October 2021

Go to Next Step – How To Mend Your Credit Rating

Get a copy of your own credit rating.
This will show if you’ve been naughty or nice, from a credit point of view. You can get this for free just by being happy to wait a few weeks, or get it straight away by paying for it. If you are still reading this the mending project may take some time so you might as well get the free one. When you get it you will see anything negative and can go to work on improving these items. That is another subject, to be looked at separately.
Compile a household budget.
If you already have a comprehensive one and it is working, you are well on the way. If you don’t have that, and the process looks daunting, decide here and now you will do the hard yards! That is the only way to come up with a sound application. You must do so, because if you make an application and it is rejected that is another big negative on your credit rating and you will have to work even harder to have any chance of making it in future. That is another subject, and is discussed below.
Rearrange your banking.
This will be something of a complicated procedure for many people, but it can make all the difference to your application.
Once upon a time (heard that old phrase lately?), you could tell the lender’s representative figures that could be included in your application and that would be acceptable. Not now!
One of the biggest criticisms made of banks was the lack of genuine assessment of the applicant’s ability to handle the loan payment, by not gathering enough data on their actual spending. This is the main reason for that failure rate of 5% jumping to 40%!
So please take the trouble to treat this matter very seriously! Remember a failed application will also show on your credit rating as a BIG negative! This is another separate matter, and is discussed below.
Repair your credit negatives.
This depends on what actual problems your credit analysis shows.
This is too complicated an area for these notes and professional advice should be sought.

Often it looks obvious to approach the entity that has put up negative data, but still get professional advice before doing this.
Check your application data and WAIT!
Communicate with someone who really actually GENUINELY can give you a good indication of where you stand for finance before you make an application. It is too easy to stuff this up. There can be things other than what is explained here that can make all the difference – these notes are definitely NOT comprehensive!
Most people can and should improve their chance of success by doing each of the steps covered in this set of notes to start with. Only when you have a long enough set of statements showing the performance of these accounts (whether that is a financial quarter or a half-year as you are advised) and have these records printed out can you then apply for a property loan.
All of this advice applies to both home loans and investment property loans!

Money – Why You May Want It But Not Have It

23 January 20203 March 2020

Believe it or not … whether you have plenty of money is most commonly the result of whether your parents had plenty of money.
No, it’s not actually genetic. You weren’t born with or without a money-making gene.

What they can pass on are things like:

Attitudes to money,
Determination to make money,
Understanding that money can be part of a wholesome fulfilling life,
Saving habits,
Interest in matters of business and investments,
Experience with business and investments, and
Examples of Success.

When you think about it, it is basically self-explanatory. But I have still explained it in case it has not become apparent to anyone still reading this.
I have long mourned the lack of “Real Life” as a school subject.
Let’s face it – if your teachers have only gone to school, the big school, the even bigger school, and then back to one of those earlier schools … How can they tell you with any authority all about what you could expect in life and how to handle it?

An Easy Way to Invest

23 January 20203 March 2020

The first person I heard talk at an investment seminar was Jan Somers. I learned heaps and realised I had previously known nothing much about investment, even though I had worked in real estate for years.
She and her husband had first invested this way, and it worked for them. They repeated the strategy and it worked again. Later they started to study investment and learned lots more other ways to do it, becoming experts. That taught me to learn everything I could, to develop expertise.

This strategy is so simple –

When you want to move to another home, just keep the one you already have and rent it out.
If I had kept every property I ever owned that strategy alone would have made me better than that TV star – that alone would have made me the “6 Million Dollar Man” PLUS!

There are some significant advantages:

You don’t have to pay most of the usual buying costs, particularly State Stamp Duties – that’s thousands of dollars that stay in your bank account!
You don’t have to put any effort into finding an investment property. The busier you are the bigger the benefit.
There are no hidden faults because you know the place inside out.
You don’t have to think about the risks of investing. You were happy there, so you are sure others will be.
You don’t have to wonder if you can afford to invest. When you went for the new home loan, you just estimated what rent you would get and the bank said “Yes!”

How good is that?

However, there are some other points worth considering:

Your new loan is a home loan, not an investment loan, in the eyes of the ATO. That means it is not tax deductible, even though its purpose in your eyes is to create the rental income.
It is in the name/s that you bought it as a home, which may not be the most advantageous for investing. Tax deductions are maximised by having the investment in the name of the person who has the higher taxable income.
The property may not be in the best location or be the ideal design for investment purposes. This can make a huge difference in the long run, particularly if it is in an area that will not go up much in value over the years.
You may not appreciate its appeal in the rental market. In the same way that people who want to sell their home have difficulty understanding that others don’t love their home as they have done, and thus don’t see its value to be as much as the owners want, renters may not see your palace as so palatial!
You are emotionally attached to your old home, and you can be deeply hurt by others not caring for it in the way you have. Investing is best done in a business-like, unemotional way.

What if you sold the old home, and then invested in a different property?

You can pay down your new home loan to minimise your amount owing personally. You are the only one who pays for your home loan, out of your net after-tax income. There is no tax deduction. It is personal debt which you should get rid of as soon as possible. This is a massive improvement in your personal finances.
The new loan to buy the invest is an investment loan, and every penny of interest and fees is a tax deduction. This is a massive improvement in the numbers that make investment pay.
You can consider whether to buy an existing property or a new one, which may come with really great additional tax deductions.
The purchase decision can be made in a logical, sensible, cold-hearted, dollars-and-cents way, as the property that will serve your personal and financial situation, to achieve goals you have thought about and will attain in time. All emotion should always be excluded from investment decisions.
The purchase costs are just part of the set of numbers that were taken into account when planning to invest, as a business expense, so they are not a problem.
You simply use the right people to advise you, starting with your property investment mentor who selects an ideal property, and including people such as the finance broker who gets you the best deal. It doesn’t have to be hard work or stressful for you.

But …

Beware of one trap. I watched my own brother make this mistake.
He had kept his previous home when he remarried and they bought a home jointly. Down the track, when he thought there might be ongoing maintenance problems he decided to sell his old place. I advised him that was a sound idea, but only if he replaced it with another investment property. Having sold, he then never got around to buying again. He would have been better off keeping the old one longer, even if it had problems, because the growth in value would have far exceeded any extra expense.
So if you decide to sell, first make a plan, preferably with a mentor, to then invest to get the benefits of being actively in the property investment market.
After all, you can only get the results of investment by investing.

Call or message me NOW for a free meeting.

Why Bother? Who Needs Money?

23 January 20203 March 2020

Only those people:

who don’t want their kids to miss out, or
who want to live an average lifestyle, or
who want to live a better than average lifestyle, or
who would like to have a touch of luxury in their lives, or
who feel they need to have a proper holiday every year, or
who would like another holiday each year, or
who wish to retire in comfort, or
who wish to retire on the same income they have been used to when working, or
who wish to retire earlier than most, or
who prefer to be able to withstand the shock of a sudden loss of income, or
who don’t have enough superannuation, or
who don’t have any super at all, or
who want to leave something for the heirs, or
who want to provide well for their children, or
who also want to provide well for their grandchildren as well, or
who prefer to pay less tax, or
who have heard about what money can do for them, or
who knew someone at school who didn’t seem to have had the same prospects of financial success but have done well, or
who would like to do well and show the world how successful they are, or
who would like to do well and not show the world how successful they are, or
who are not put off by someone saying that making money is bad for you, or
who want to feel they can handle that rainy that catches so many others out badly, or
who are so like YOU …

Why? Why not?
Would it hurt you to find out how to be better off? Particularly when all that is involved is giving Ian a call and inviting him around for a coffee at your home. He likes his coffee black and weak. That won’t cost much will it?

Go on, just ask here, right now