Skip Navigation

Apply Online

Compare Home Loans

Home Loans

Getting your loan approved is just as important as choosing the right loan.

Most people don't realise how difficult it can be to meet the Lender's strict criteria. Getting help from your True Choice Home Loans Mortgage Analyst / Broker is one way to avoid disappointment.

Arrange an Appointment

Lenders Mortgage Insurance Underwriting Guidelines

As with any insurance policy, the insurance company will have a set of guidelines under which they measure risk and either accept or reject an application for insurance. Mortgage Insurers will look at each application based on their guidelines which have been developed following many years in the business.

The inability to obtain lenders mortgage insurance on a home loan is probably the most common reason for home loan applications being declined. The following information is provided as a guide only to help in understanding the process a little better. It may also save you getting your hopes up for a loan approval when it may be obvious that you are unable to meet certain requirements.

True Choice Home Loans can assist you in determining whether your particular circumstances will allow you to qualify for Lenders Mortgage Insurance. If you meet some criteria but not others, we would be happy to contact a Mortgage Insurer on your behalf to see what they say before you put in a formal application.

Savings

This is the first area to concentrate on. The mortgage insurers will want to see that you have saved up at least 5% of the purchase price of the house. You may also be required to show that you have saved additional funds which will be used to cover the costs involved with the purchase.

The thinking here is that a borrower who has saved a deposit is more likely to be prepared for difficult circumstances and therefore provide a reduced risk for the mortgage insurer. The mortgage insurer will want you to have documents (bank statements over three to 12 months) proving that you have actually saved the money and have not borrowed it and put it into your account. The 5% deposit plus costs is to be verified as genuine personal savings. This amount is not to include:

  • Gifts or an inheritance (refer note)
  • Proposed savings plans
  • Sale of assets (other than real estate)
  • Personal loans
  • Favourable purchases
  • Builder's rebate / incentive

Contact True Choice Home Loans for further information regarding your particular situation.

Note:
ACCELERATED PAYMENTS - Where all or part of the borrower's minimum 5% equity (plus costs) is in the form of a gift or inheritance and savings growth has been sacrificed by making accelerated repayments on an existing or recent financial commitment, the Insurance Company may waive the minimum 5% genuine savings requirement. In these circumstances, the existing savings plus the value of excess repayments must be equal to or greater than the minimum savings required. The lender is required to retain satisfactory evidence of savings and excess repayment verification on the loan file.

Employment

Just because you have a job, or you know that you can afford the loan repayments, does not mean that you will qualify for a home loan or be accepted for lenders mortgage insurance. As a guide, the type of employment as well as how long you have been employed, is important.

The lender and / or mortgage insurer will require certain documents to verify your employment details such as tax returns, pay slips and may even contact your employer directly. An outline of what might be acceptable employment status follows:-

  • Permanent P.A.Y.G. employment - a minimum 6 months in your current employment. If you have been less than 12 months in your current employment, you must have been in your previous employment for at least 2 years and in the same field.
  • Permanent part-time employment - a minimum 12 months in your current employment.
  • Casual - a minimum 12 months and in addition to your normal employment. Caution will be exercised if casual employment is the only source of income.
  • Second Job - you must have 2 years continuous history in the position.
  • Self employed - at least 2 years trading in the current business.
  • Contract employment - A minimum of 12 months in current employment is required in this instance.

Note: Confirmation of current employment is likely to be obtained by the lender.

Serviceability

Commitment/s to income ratio:

Proven regular (taxable income) must be sufficient to adequately service all commitments.

Generally commitments should not exceed 30% of gross income. Higher commitment levels may be considered based on individual merit.

Due to the extremely high downward movement of interest rates in recent times, the insurer uses a benchmark or notional interest rate to assess an applicants ability to adequately service commitments. The benchmark rate is usually 2% higher than the current standard variable housing rate.

Other forms of acceptable income (subject to limitations):

  • Second job - 100% used if 2 years continuous history in the position
  • Permanent part-time - 100% used if 12 months continuous history in the position
  • Casual employment - 100% used if in same employment for at least 2 years, otherwise a maximum of 50% may be used if income level is consistent
  • Overtime - 50% may be used to assist in serviceability if 2 years consistent overtime income history is evident
  • Shift allowance - 100% to be used only if it is a condition of employment and is an industry standard
  • Rental income - 75% of gross rental income may be used as an offset against commitments
  • Investment income (interest, dividends) 50% of income as demonstrated in tax returns - income level must be sustained over the past 2 years
  • Social security benefits - must be payable for the next 5 years (unemployment benefits / sickness benefits are not acceptable)
  • Car allowance - may be used as an offset against corresponding car repayments
  • Maintenance - not used
  • Self employed - applicants must produce last 2 years business and personal tax returns. Taxable income with allowable add backs must be sufficient to service total commitments for a minimum of the last 2 financial years.

Allowable add-backs: - Income / salaries of directors (where not already included in income calculations) - Interest paid on debt being refinanced - Non-recurring expenses

Unacceptable add-backs: - Projected income - Depreciation. (Depreciation is not normally an allowable add-back as depreciating assets may need to be replaced in the future, therefore this expense will crystallise in time. It should only be used to enhance serviceability and not be relied upon to service commitments.)

True Choice Home Loans will help you to work out if your particular employment and income situation will satisfy the Mortgage Insurers requirements.

Security

Security is the alternative means of clearing the loan debt should the borrower not be able to fulfil their repayment obligations. Therefore, it is vital that the security is readily saleable to avoid a protracted selling period.

The security property should be:

Zoned residential or rural residential (see notes below)
A house, villa, unit, duplex, or vacant land

  • In good condition
  • Well presented
  • Readily saleable

Any adverse features of the property must be disclosed, for example:

  • Affected by any local government or state planning scheme
  • In need of repair or has been poorly maintained
  • Reduced marketability due to location
  • Located in a designated landslip area

Unacceptable securities:

  • Income producing rural properties
  • Studio apartments / bedsitters
  • Serviced apartments
  • Conversions from another purpose
  • Properties used for commercial purposes
  • Properties that are unique, or have restrictive usage
  • Properties to be constructed by an owner-builder (in whole or part), where the LVR exceeds 50% of the lesser of the cost price or valuation.

Note: The following conditions relate to rural residential securities:

  • 10 hectares maximum
  • Located in a town with a population of at least 7,500
  • Must have water and power available

House and land packages:

Lenders are required to ensure valuers comment on the fact that the security is a house and land package, and must document details of rebates and / or incentives. It is the responsibility of the lender to ensure that the valuer is made fully aware of all the facts.

Where rebates and / or incentives are noted, the insurer will discount the value of the rebate and / or incentive from the purchase price. The LVR, and in turn the premium payable, will be calculated based on the valuation or the discounted purchase price, whichever is the lesser.

The valuation report must include recent comparable sales of properties sold in the area without rebates and incentives.

The insurer must sight the borrower's saving records wherever the LVR exceeds 90%.

Savings plans and rent / buy programmes are generally not acceptable.

Advantageous / favourable purchases (i.e. - where a property is being sold to a family member at a discounted price or where a vendor is selling the property at a discounted price to a borrower to whom he is indebted)

The lender is to ensure that the valuer is made aware of the fact that the transaction is advantageous purchase.

The lender is to confirm to the insurer in writing the details of the advantageous purchase.

The premium is to be based on the LVR calculated on the valuation figure.

The borrower must contribute a minimum of 5% plus costs in relation to the purchase price.

Loans to non-residents:

Maximum LVR 75%

Maximum loan amount $300,000

Applicants must be "blue chip" in all aspects in particular asset position

The lender is to obtain written evidence that Foreign Investment Review Board approval has been granted

The lender is to ensure that a Power of Attorney in favour of an Australian resident is current in respect of each non-resident applicant