When it comes to assessing the loan application, Australia lenders and mortgage insurers can be pretty strict, with their well-defined lending criteria. The problem is, if you don’t meet that criteria or are not among the list of their preferred borrowers, they will reject your application. However, there are some banks that may bend their rules and try to accommodate your loan application, but it is really still a grey area.
Types of Preferred Borrowers
Before getting into the type of preferred borrowers, you need to understand different types of borrowers. A trustee of a trust, a company or a person over 18 years falls into the category of being an acceptable borrower. The borrowers that are excluded include minors (below 18), clubs, associations, and limited liability companies.
There are also case-by-case borrowers who don’t fall into any of these categories of a conventional borrower, but they still qualify for a loan by building a strong case in their favour. These include non-residents like a permanent or temporary resident or a non-resident who doesn’t live in Australia. Another person in this category is a borrower of convenience who does not get any benefits from the loan.
Trusts and Companies
In the case of companies, all the shareholders and directors (notional director not included) should provide a number of unconditional personal and joint guarantees. If the trustee of a trust is part of a company, its shareholders and directors are also required to do the same.
Trustees are borrowers in their own right. The same goes for unit, discretionary, and family trusts. Hybrid trustees, however, do not qualify for mortgage applications.
Borrowers of Convenience
Borrowers of convenience are another preferred borrower. These people are included in mortgage applications to provide security and/or serviceability, but they don’t necessarily receive any tangible benefit from a loan transaction.
Apart from guarantors, borrowers should have some kind of interest in the loan either via spousal or de facto relationship or via joint ownership of a security.
Non-residers are people who don’t currently have permanent residency in Australia and/or may live in another country for work purposes. Australian citizens are considered residents even if they are employed in another country. Similarly, citizens and permanent residents of New Zealand who work in New Zealand are considered residents of Australia. The net assets of this type of preferred borrower should be at least $500,000.
In this case, the maximum amount you can borrow and the maximum loan to value ratio you are eligible for is 90 percent and 70 percent respectively.
If one borrower is a non-resident and the other borrower is a resident as per the above-mentioned definition, the loan application assessment will be done under the normal policy, and the non-resident policy will not apply.
Employment Status of a Natural Person and Serviceability
The acceptable job statuses of preferred borrowers are as follows:
- Contract Employment (full time or part-time) – The borrower must be working for at least a year with a current employer, or have a minimum of 2-year continuous experience in the same industry. If a person is on a probation period, the strength of their loan application and financial position matters a lot.
- Casual Income – He or she must have at least 1 year of experience in the current employment to be able to qualify for a loan. If a casual employment is their only source of income, the application assessment is done on a merit basis, keeping in mind the borrower’s financial position.
- Self-employed – In this case, a person must be doing the same business for at least 2 financial years. The lenders may also consider the application if a borrower only has 1 year of experience in their current business, but have at least 2 years of experience in previous employment within the similar. However, the overall strength of the application will be taken into consideration for that matter.
- Second Job – A person must have at least 1 year of experience in their current job.
Acceptable Income Types of Preferred Borrower
If the duration of employment is met, 100 percent of the borrower’s income will be accepted for review by the lender. Below are the income types that might be fully accepted – subject to certain conditions.
- Shift Allowance
- Rental income
- Child support
- Fully maintained company car
- Car allowance
It is very important to discuss your case with a mortgage broker as they have years of experience in the market and tell you how to get the loan approval. In fact, they can guide you in the right direction, keeping in mind your financial objectives and overall budget.