| There are many who claim to give you an analysis on | | | | Note, different lenders do their assessments differently. |
| how to conduct yourself as a competent mortgage | | | | They view structure differently. |
| broker. | | | | The structure of your clients loan is extremely |
| 5 important rules should be highly considerate when | | | | important. This can involve identifying the difference |
| helping consultants and clients quickly understand how | | | | between a coded loan and a non coded loan (owner |
| mortgage works. The rationale is quite simple, if the | | | | occupied or investment) as different laws can govern |
| client has a basic gauge of how finance works, then | | | | different loans. |
| he is much easier to deal with. If the consultant | | | | This can also involve knowing how different products |
| educates the client, then he will be more successful as | | | | are assessed with different lenders. |
| an operator, he will win a lot more referrals and be | | | | This can also involve the way the loan is viewed in |
| viewed more competent than others. | | | | terms of serviceability. So as an example, an |
| Security | | | | investment loan has a higher borrowing capacity than |
| Serviceability | | | | a home loan, as some lenders factor in negative |
| Structure | | | | gearing when assessing the loan as the loan can/could |
| Statements | | | | be tax deductible. Also the lender factors in rental |
| Story | | | | income if it is applicable. Rent is an income. |
| What are these about and how do we apply them in | | | | In some cases you will find a loan being assessed |
| the world of finance? | | | | more stringently with one lender as opposed to |
| Attention to detail is paramount! Each rule will always | | | | another lender. So for example, Bank A assesses a |
| cross reference to the next S rule. The 5 S's are | | | | line of credit at 25 year term on a principle and interest |
| always interrelated. | | | | basis. With Bank B, the same loan is assessed without |
| Security | | | | a term on an interest only basis. Therefore Bank B is a |
| A good broker should be security based. In that, it is | | | | more generous lender for lines of credit. However, |
| meant that we help you borrow against property as a | | | | Bank A will factor in negative gearing benefits in its |
| main security. | | | | calculator. With Bank B this is not possible. So one |
| Is the client buying real estate security? Are they | | | | benefit can supersede another benefit. Knowing this |
| refinancing real estate? Is the transaction a | | | | variance in structure and how to balance your client's |
| combination of refinance and purchase? | | | | position to achieve maximum benefit is very important. |
| A good broker will immediately attempt to identify the | | | | As another example, some lenders will not assess a 4 |
| security he/she is dealing with. Is it residential, | | | | or 5 year fixed rate at a higher rate. This is important |
| commercial, industrial, franchise security? Remember, | | | | as it could increase the borrowing capacity for a client |
| different security types will be viewed differently by a | | | | as the assessment rate used in conducting |
| lender. A lender will lend differently against commercial | | | | serviceability is not loaded. |
| security as opposed to residential security. Lender's as | | | | Statements |
| a general rule of thumb will lend the most against a | | | | The documentation required in order to allow a loan to |
| residential security property. This can be as high as | | | | be processed. Make sure you have compiled all the |
| 105%. If the client has real estate security, or a | | | | documents required in order to allow you to make the |
| franchise business we have a transaction ready for | | | | judgment that the loan application is ready for |
| processing. | | | | processing. |
| Serviceability | | | | Your application for finance is a statement. The |
| Otherwise known as 'The Law of Affordability.' | | | | income documents you supply are statements. The ID |
| Can the client afford the debt? This will include the | | | | you supply for the client are statements. The loan |
| overall debt exposure the client has. A serviceability | | | | statements being supplied for a refinance are |
| analysis on the client's affordability position will generally | | | | statements. There are many aspects to the |
| be conducted - the common sense rule. This is to | | | | statements aspect of the five S rule. You must be |
| ensure that the client can afford the debt/s. | | | | able to decipher what is required on the spot when |
| Remember, different lenders do it differently, so a | | | | dealing with the client. |
| client's affordability position can/could vary between | | | | The documentation required to process loans with |
| different lenders. You will need to be attuned to | | | | different lenders for the same scenario can vary |
| different lender requirements. | | | | between lenders. As a general rule, you must supply a |
| As a general rule of thumb, lenders will put a buffer in | | | | serviceability sheet with every application with the |
| the serviceability module that will be conducted. For | | | | exemption of No Doc loans. You must supply income |
| example, lenders will assess the debt at a higher | | | | statements in terms of payslip's, group certificates, tax |
| interest rate to allow for fluctuations in interest rates | | | | returns, income declarations etc. You must supply 100 |
| now and in the future. | | | | points ID. |
| A verified serviceability statement can be made by | | | | Peruse all documents before submitting, and make |
| way of providing income documents. This can/will | | | | sure the documents are in alignment with the |
| include payslip's, group certificates, employment letters | | | | designated structure. So this would mean that income |
| from employers, tax returns, profit and loss | | | | documents would need to be aligned with the |
| statements, cash flow forecasts, and rental | | | | serviceability being conducted. |
| statements. Anyone of these documents can be used | | | | With a refinance, make sure you have provided 6 |
| to verify income. In some instances it could include all | | | | months previous lenders loan statements for debts |
| these documents and others. | | | | being refinanced. See the conduct of these |
| Also, serviceability can be made by way of a client | | | | statements! Are they satisfactory? Enquire as to the |
| making an income declaration (non verified). This is | | | | conduct why there are any delinquencies if there are |
| otherwise known as a Low Doc (low documentation) | | | | any? |
| declaration. Even when a client makes a Low Doc | | | | Provide some type of evidence of the property in |
| declaration, the lender takes the income stated on the | | | | question. If it's a refinance, get a copy of a council rate. |
| declaration and runs this figure through a serviceability | | | | This will show who owns the property and will also |
| calculation. All low doc loans still go through a | | | | give the title details of the mentioned property. If the |
| serviceability analysis. Hence a pass or fail analysis is | | | | transaction is a purchase, you would need a front |
| produced. That is the client must still be able to afford | | | | page of contract, and/or a copy of a transfer. |
| the debt. | | | | Story |
| Nonetheless, a client can take on a No Doc loan. In this | | | | Remember to explain the whole transaction. |
| case, no income statements in any form are to be | | | | This is the sell and/or explanation of the deal. This is |
| provided. All that is required is a declaration of | | | | your opportunity to sell the client to the lender. |
| affordability. That is the client signs a statement stating | | | | Remember, the lender does not know your client, nor |
| that he/she can afford the debt without incurring | | | | do they have personal relationship with them. Stick to |
| financial hardship. No income figure needs to be stated. | | | | the facts. Learn as much as you can from the client |
| You should NOT submit a loan without conducting a | | | | about themselves and their situation. Translate this |
| serviceability analysis or applying the common sense | | | | information into relevant facts pertaining to the |
| rule. There is duty of care towards the client, and the | | | | application. As mush as possible, be detailed, but refrain |
| client should be made aware if he/she is violating the | | | | from using emotive language. |
| law of affordability. | | | | As a broker, if you can interrelate these 5 five rules, |
| Structure | | | | you will be successful. |