Finance

29 July 08 Dymphna Boholt

Financing is one of the least understood aspects of investing, yet most people seem to think that they don’t need any additional education in this area.

When you apply for finance, there are three main categories your lender will consider. They are The 3 Golden C’s:

Character - Takes into account your past credit history, including any defaults or judgements that may be lodged against you. They also consider how many loans you have applied for in recent times.
Capacity - Is the assessment of the applicant’s ability to service or repay a loan.
Collateral - Is what usable equity you have in your home or other real estate investments. I say useable equity, because in some cases it may be beneficial to utilise mortgage insurers and get 90% against the value (if your equity position is weak).

Generally speaking, most applicants are weak in one or more of the Three Golden C’s.

Strengths and Weaknesses

Now that you have looked at your Three Golden C’s, you will be able to see where your strengths and weaknesses lie and you will be able to plan ahead to make the most of your strengths.

Bad Credit History Notes

A poor credit history does not mean that you are not able to get finance, it does not matter if it is as small as $1,000 from a credit card or discharged bankrupt – you DO have options.

Getting Market Ready

Types of Loans:

Principal Only Loans - This is a groovy little technique that can be employed when you have a motivated seller. A seller maintains an interest in the property, (sometimes secured on the property, but not always). The balanced is paid over a period of time, with no interest.
Line of Credit, Re-draw Facilities and Offset Accounts - These loans are very similar products and all give you the ability to access funds against your mortgage when needed. The line of credit and re-draw facilities are virtually inter-changeable. You can access funds up to the set limit (depicted by your income). Both loans are usually operated on an interest only basis for the amount borrowed, calculated on a daily basis. An offset account is a little different, in that excess monies do not actually pay down the loan balance, but sit in a parallel account and interest is only calculated on the difference between the two.
Fixed Loans - Most financiers offer borrowers the option of fixed loans. These maintain a guaranteed interest rate for a specified period. Loans maybe fixed from 1 to 5 years, but can be fixed for 10 to 15. Basically, fixed loans are when you contract to the bank for a specified period for an agreed interest rate.
Honeymoon Loans - Some institutions offer a six month or one year discounted rate to attract new business, usually about .5% to 1% below current variable interest rates. When the honeymoon is over; the loan will revert to the standard variable rate, or you can elect to fix the interest rate for a period.
Basic Loans - A basic loan is based on the variable interest rate, but the bank will offer you a discount for the life of the loan. The downside for this discount is you will have restrictions on the usage and flexibility of the loan. If you want to repay a lump sum, it has to be in large amounts.

First Home Owners Grant

Buying your first home can seem to be a huge task but in Australia, first time home owners are fortunate enough to have access to the First Home Owner Grant (FHOG).

Eligible applicants from 1 July 2000 are entitled to a one-off $7,000 payment.

Eligible applicants must be natural persons who are Australian citizens or permanent residents, who are buying or building their first home in Australia.
Requirements vary between jurisdictions regarding the number of applicants who must be an Australian citizen or permanent resident and how old an applicant must be. You will need to explore the criteria for your State or Territory to determine eligibility.
To qualify for assistance, neither the applicant nor their spouse (or de facto) must have owned a home prior to 1 July 2000, either jointly, separately or with some other person.
Neither the applicant nor their spouse (or de facto) must have owned and occupied a home after 1 July 2000.
Neither the applicant nor their spouse (or de facto) must have claimed this grant previously. Entering into a binding contract or commencement of building, in the case of owner-builders, must have occurred on or after 1 July 2000.
An eligible home will be located in Australia and will be a new or established house, home unit, flat or other type of self contained fixed dwelling that lawfully can be used as a place of residence.
An eligible home must be occupied by the applicant(s) as their principal place of residence within 12 months of settlement or completion of construction of the home.
There are minimum periods of occupancy required by jurisdictions. Please select the State or Territory under More Information below to see if a minimum period applies.
Application for the grant must be made within 12 months of completion of construction or settlement of the home. Assistance will not be means tested.
There is no tax payable on the grant.
Joint applicants will be restricted to a single application for a single property and only one payment of $7,000 will be made.

If the consideration of the home is less than $7,000 then the grant amount paid to the applicant will equal the consideration. For more information see: http://www.firsthome.gov.au/

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