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Frequently Asked Questions
Deposit Bonds. What are they and how do they work? One of the most common concerns people have when they come and see us about their finance is where do they get their 10% deposit monies when they have to exchange contracts on their new home purchase. This is particularly so for people who are selling their own home and moving into another, or for those people buying an investment property and using the equity in their home to complete the purchase. They have equity in their existing property but no cold hard cash in the bank. The deposit for the new home is required when contracts are exchanged, which is generally six weeks before you actually settle on the home. The banks won’t advance any money until the new home settles, and not everyone has the required amount of money sitting around to cover the deposit required. That is where Deposit Bonds come in very handy. Instead of handing over cash for the deposit, you can generally use a Deposit Bond instead. It is simply a piece of paper that guarantees the vendor will be paid their deposit money. So there is no need to have the cash. Deposit Bonds are simple and relatively cheap – around $360 for a $30,000 deposit and can be prepared very quickly. All that is required to obtain one is proof that you have sufficient funds to complete your purchase. That proof can be in the form of a Loan Approval from your lender and/or proof of sale of your existing home. Once those matters are in place, the Deposit Bond can be issued, and you can proceed with the exchange of contracts on your new home or investment property. Deposit Bonds are one of the many services we can help you with here at ProCorp Finance. Why are mortgage brokers and finance consultants becoming so popular? The home loan lending market is changing rapidly here in Australia. Many of the major lending institutions are instrumental in driving that change as they look to reduce their costs of operation. One of the ways they are reducing their costs is to get customers to go to Mortgage Brokers such as ProCorp Finance to source their finance needs. This move has led to an explosion in mortgage broking firms and mortgage brokers in general. Here in Australia it is estimated that 25% to 30% of home loans are written through mortgage brokers, while in the United States it is 80% and the UK has similar figures. As we often follow the trends of these two countries the growth in the mortgage broking industry is expected to continue to grow rapidly over the coming years. This of course is advantageous to the client as they can not only have someone come out to see them at home or work but they can have someone do all the shopping around for them when it comes to obtaining a home loan. Conversely with so many new brokers in the market the new challenge for clients is who to choose. Self employed and having problems getting finance? Traditionally, self employed people found borrowing money from the banks a very difficult exercise due to the added requirements the lenders imposed upon them. As a result, Lo Doc or No Doc loans began to be offered from a variety of smaller lenders to cater for the self employed market. These loans proved to be so successful in filling a need that it is becoming the fastest growing type of loan in the market. So much so that it has turned full circle and we now have some of the major banks now doing Lo Doc Loans. So what are they? How do they work? And who qualifies for such loans? Essentially a Lo Doc Loan is one where you do not have to provide financial information (Tax Returns, Group Certificates etc.) as proof of your ability to repay a loan. All that is required is a declaration that you can make the necessary repayments. This may also need to be confirmed in writing by your accountant. So there is no need to prove your income. All other information that is traditionally required still needs to be provided, such as a clear credit history, and proof that existing loans, if any, are being repaid and in order. There are many lenders in the market who now offer such loans and you do not have to be self employed to qualify for such a loan. There are many people on wages, who receive large bonuses or commissions which makes it difficult to determine their exact income, who can qualify for this style of loan. They can be used to purchase investment or owner occupied properties as well as vacant land or for construction purposes. Interest rates for Lo Doc Loans are generally around 1.0% higher than your standard home loan rate. However, some lenders will write them at the standard home loan rate. If you wish you can also fix your interest rate with a Lo Doc Loan and/or opt to have it interest only for a period of up to 5 years. You will need a minimum 20% deposit for such a loan, however you can use the equity in your existing property as opposed to having a cash deposit. Unlike the traditional housing loan you cannot borrow up to 95% of the value of the property with a Lo Doc Loan.
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