Home loan denied due to lenders mortgage insurance

Lrldowling03 on 26/05/2017 - 09:40
Last edited 26/05/2017 - 12:13

Hello OzBargain,

I've been looking into building a new home this year thanks to the boost in Victoria of $20,000 first home owners grant for regional builders.

I've put down a $1k holding deposit on the land and have had the contracts signed for about a month now and the 10% deposit is due to be paid next week.

I've spoken with a builder and paid $2,000 deposit to them and have had all the soil tests and site plans done, as well as a LCA which was an extra $1.4k cost since the land has no sewerage system.

I was speaking with a broker about getting this all financed, but went to the Melbourne Home Show recently thanks to cheap tickets from OzBargain and spoke to someone local from RAMS.

They sold me on the ability to use rental history as genuine savings. Having about $10k of my own savings at the time, but needing to use some of it for other expenses, this was what I was sold on being able to do.

Now I share rent with a housemate and was told this wasn't an issue with them, as long as I can show I'm paying it.

I submitted all documentation on Wednesday including rental history for the house (showing all payments from both people living in the house) and my bank statements showing my contribution towards rent.

I heard back at 9pm last night that it's not going to be approved simply due to the lenders mortgage insurance people not going to allow the use of the rental history as genuine savings, even though I have given them proof that I've paid them from my bank account every fortnight for the past year as they asked.

My question is, is there any recourse here with the financial ombudsman or am I just shit out of luck and too bad?

My main problem is now my credit history might have this loan on there, which is the reason I wanted to go with a broker to begin with (1 lookup for multiple banks) but RAMS really sold me on the rental history.

Sorry for the long story, just really fuming at the possible loss of $5k in building deposits and months of wasted time.

Thanks for any advice or help

EDIT: Thanks all for the comments. Looks like it's back on the savings train for another year to get out of LMI territory.

Financial

Comments

  • scrambledeggs on 26/05/2017 - 09:48
    +1

    You're out of luck. They all have tiny text you agree to which forgoes any of your rights.

    • rldowling03 on 26/05/2017 - 09:56

      Yeah I figured this is most likely the case which is highly disappointing

      • outlander on 26/05/2017 - 11:08
        -1

        I wouldn't give up just yet. Tiny text only has power in a courtroom. Call them up, again and again, demand to talk to superiors, state you've been promised this or that. If you're enough of a bother, chances are they'll find some magical way to make it happen

        • scrambledeggs on 26/05/2017 - 13:36
          +14

          This is a home loan, not an iPhone. I don't think your typical consumer tactics will work…

        • outlander on 26/05/2017 - 23:20
          -3

          @scrambledeggs:
          Like there's a difference. In fact your chances might even be better, simply because the fact it's not an iphone means they don't deal with aggressive people as much

  • Looking4Bargians on 26/05/2017 - 09:55
    +1

    If you are from VIC then please PM me.

  • chumlee on 26/05/2017 - 09:59

    I don't know if brokers can do one credit enquiry for multiple banks. Wouldn't they do one with the bank they recommend you go with?

    • Sira on 28/05/2017 - 10:29

      Brokers don't do any credit checks. They present options, you pick one and apply and during the processing at the lender/bank they do a credit check…

  • k-rokfm on 26/05/2017 - 09:59
    +4

    Sorry but I may have read this incorrectly, but are you trying to get a home loan with 10k (cash) savings/deposit?

    • jellykingdom on 26/05/2017 - 10:12
      +1

      The point is, its pretty hard to save up >$10k when you're spending on rent. And if you're spending $400pw on rent, why shouldn't you simply be able to prove to the bank that you'll be able to pay off $400pw on the mortgage

      • k-rokfm on 26/05/2017 - 11:02
        +3

        Oh no i completely agree with that point and im also a renter wanting to buy a first home (but will never be able to cough cough) but just know that i wont be able to get a home loan without something behind me

      • OzzyOzbourne on 27/05/2017 - 18:55

        That will go towards paying the mortgage of course, but you have to have a cash deposit irrespective to how long and how much rent you've paid.

      • thefud on 28/05/2017 - 08:06
        -2

        It's not that hard … I pay rent and was able to save $50k in under two years on a modest wage (less than $100k) while paying rent utilities etc. If you can't save more then $10 000 renting you are doing it wrong.

    • [Deactivated] on 26/05/2017 - 10:17
      +3

      Technically 30k, if the OP qualified for the full 20k first-home-owners grant.

      But the OP should've done a lot more research … 10k cash is never going to cut it for new construction in a regional area. There'll be a bunch of expenses that you can't borrow for, valuation problems, etc

      • rldowling03 on 26/05/2017 - 12:05

        Been told by various lenders that $10k was enough for what we're budgeting. It's a rural build on a cheap block

        • [Deactivated] on 26/05/2017 - 12:24

          Been told by various lenders that $10k was enough for what we're budgeting

          Did you ask them to elaborate?

        • rldowling03 on 26/05/2017 - 12:36

          @sp00ker:

          Yeah combined with rental history to show genuine savings along with low land and build costs (<$200k) and FHOG of $20k was all drawn out and explained. Had clear set goals saying 'you need to show this much in savings for 3 months and these extra costs for conveyancer, land duty tax (forget the name) and deposits out of pocket then it's good'

          But I do understand the volatility of <20% deposits and LMI now, it's never been stated to me that it's even a remote chance of being denied given the circumstances I'd told the agents

        • Ughhh on 26/05/2017 - 13:41

          Did you get a pre-approval?

        • rldowling03 on 26/05/2017 - 14:54

          @Ughhh:

          Had a conditional approval with the condition of rental history being provided for the unconditional approval

        • djkelly69 on 26/05/2017 - 17:47
          -1

          Start talking to the other lenders ASAP.

  • jellykingdom on 26/05/2017 - 10:13
    -1

    I'd give the Ombudsman a ring

    • Baysew on 26/05/2017 - 13:44
      +4

      Better not tell Margaret Court.

      • jellykingdom on 26/05/2017 - 14:49

        I literally do not understand that at all (or why i've been negged here?)

        • loulou1 on 26/05/2017 - 17:11
          +1

          I think the joke is you giving someone a ring (engagement) which Margaret court would not approve of given the letter she wrote to a company that is in support of gay a marriage.

  • garetz on 26/05/2017 - 10:18

    Sounds like they misled you.

  • [Deactivated] on 26/05/2017 - 10:19
    -1

    10k and you wanna buy a house.
    https://www.youtube.com/watch?v=jL2DH-nKBeA

    • [Deactivated] on 26/05/2017 - 10:22
      +1

      *build a house - huge difference in what you'll be able to borrow and how much cash you'll need for extras

    • poboy on 26/05/2017 - 11:26
      +2

      Maybe just build a pool room.

  • mrmc on 26/05/2017 - 10:25
    +7

    The rental history might not be considered future savings since your building on land and will continue to have to pay rent as well as a mortgage?

    • stralya on 26/05/2017 - 11:05
      +1

      Was just about to say the same thing. Rental payments count only if you can redirect that money into your mortgage.

    • rldowling03 on 26/05/2017 - 12:11
      +1

      The rental history is only used in place of having actual savings. So $10k of actual real savings and then $15k for one years worth of real savings and then $20k for FHOG means there is a savings showing of $45k. Still need to have the ~10% deposit in actual cash, but you have to show up less in longer term savings. That may not make sense, I'm not entirely sure :\

  • djkelly69 on 26/05/2017 - 11:22

    Find out who the mortgage insurer is that the bank uses - there are different mortgage insurers who have different requirements (and rates).

    Then you need to apply through another bank who uses one of the other mortgage insurers, and hope their requirements are different.

    Also +1 to you not having anywhere near enough money to build a house.

  • CLoSeR on 26/05/2017 - 11:26

    Umm no. $10k will not get you a loan to buy or build a house unless is was a $100k house and land package.

    Your LVR would be way to high, you'll want at least 10% of the total cost in savings and even then you'll need to front up cash for LMI as it's more than 80% loan. There are also additional costs like solicitor, searches, etc. Keep saving buddy.

    • [Deactivated] on 26/05/2017 - 12:28

      $10k will not get you a loan to buy or build a house unless is was a $100k house and land package.

      I was going to post a similar reply, but have a look on realestate.com.au for houses in regional victoria.

      There's several available for under 100k. Probably not what big city people are use too … but I guess its doable.

      • CLoSeR on 26/05/2017 - 12:34

        OP is buying land and building a house (He's a bit light on details as to land and home estimated costs), I figure at least $200k for basic home so even with $100k property plus costs we are talking over $300k. Lenders are also tightening criteria, I think 90% loans are getting harder to come by.

  • [Deactivated] on 26/05/2017 - 11:57

    I think the conditions are in flux, as the federal government are tightening lending via APRA. The first round of culling will be the heavily leveraged loans, such as yours, so agencies might be following the moving standards.

    "APRA has written to all ADIs today advising, in summary, that APRA expects ADIs to:
    limit the flow of new interest-only lending to 30 per cent of total new residential mortgage lending, and within that:
    place strict internal limits on the volume of interest-only lending at loan-to-value ratios (LVRs) above 80 per cent; and
    ensure there is strong scrutiny and justification of any instances of interest-only lending at an LVR above 90 per cent;
    manage lending to investors in such a manner so as to comfortably remain below the previously advised benchmark of 10 per cent growth;
    review and ensure that serviceability metrics, including interest rate and net income buffers, are set at appropriate levels for current conditions; and
    continue to restrain lending growth in higher risk segments of the portfolio (e.g. high loan-to-income loans, high LVR loans, and loans for very long terms).

  • [Deactivated] on 26/05/2017 - 12:27
    +2

    How much does the land cost? What was the expected build cost?

    Have a look on gumtree for an old demountable house … maybe that'll cut the costs enough to get you over the line without LMI … wait a few years until you have enough for a new build.

  • tsunamisurfer on 26/05/2017 - 14:51
    +3

    Was your contract for land purchase condition on finance approval? If yes, then you should get your land purchase deposit back. If no, then you have bigger issues and may be forced to buy the land anyway.

    "I've spoken with a builder and paid $2,000 deposit to them and have had all the soil tests and site plans done, as well as a LCA which was an extra $1.4k cost since the land has no sewerage system."

    Why did you do this when you haven't got finance, you haven't even settled the land??? I think that money is gone with no recourse.

    In general remember, LMI is HARDER to obtain than the mortgage itself. LMI is about the worst case scenarios so they have to be extra careful and hold you to a higher standard than the banks. Relying on Rental history as savings is right at the edge here. Mortgage Brokers will almost always say, 'it will be doable' at the beginning.

    I am sorry OP but this is on you. Please learn from this lesson.

    • rldowling03 on 26/05/2017 - 14:59

      Lesson learned for sure. Reason builder was contracted before hand was to speed things up, so completely get that loss is on me.

      Any advice on who to talk to about this process? I found it very difficult to get actual advice and someone who I could speak to about the entire process. Conveyancer, builder and lender were sometimes contradictory to each other :\

      • tsunamisurfer on 26/05/2017 - 15:35

        This can be a daunting process and I don't think I learned it by speaking with just one source of information.

        Conveyancers are helpful due to their knowledge around their transfer of property (including the finance of), but they stop at settlement, they don't really get into your building contracts.

        Builders generally start when you have a block available and you go through a design or choose one of theirs. they don't generally care about your finance, only that you make their payment gates.

        Lenders generally encompass more of the process as they control the money.

        I would start speaking with one or two in-house lenders at the bank branches and tell them :

        • What you want to achieve?
        • How much you want to spend?
        • You have learned a hard lesson that you likely won't pass LMI eligibility based on your current position, so what do you need to do to either avoid LMI or improve your standing?
        • What your timeframes are. The good thing about buying land then building is the potential to stagger your spend.

        Also would help to visit a couple of builders and see what they offer and get an estimate of how much it would cost for your target build to the TURNKEY stage.

        Don't sign anything, you are just talking and getting info. All the best.

        • rldowling03 on 27/05/2017 - 09:26

          Thanks.

          I'll step back for 6 months, take this all as a lesson and take the learnings forward. Knowing now that rental history doesn't mean anything in my situation will bring back some of that realism that RAMS took away in saying it's highly valued to have.

  • hazzad on 27/05/2017 - 08:12
    +1

    Do you have anyone who can act as a guarantee on the loan? Maybe a parent with a home they own or have a decent amount of equity in the home and land? Might be an option? But yeah sympathise with you.

    • Wonka on 27/05/2017 - 08:21

      This.

    • rldowling03 on 27/05/2017 - 09:24

      Yeah that's always been an option, and one of the options given by RAMS as ways to progress forward, but my parents don't have the equity to help unfortunately, otherwise they'd jump right on it..

      • hazzad on 27/05/2017 - 09:28
        +1

        Shame mate. Do you any option to at least get a loan for the land alone to at least keep that and wait a few years to build or can't service that? Seems a real shame to have wasted your money up to this point?

        • rldowling03 on 27/05/2017 - 15:45
          +3

          All good. I earn a decent living, and with bonus coming up this financial year along with a pay rise, it'll help get things back on track to try again in 6 months with >80% LVR to avoid the LMI

        • aromatase on 27/05/2017 - 20:26

          @RyanTheAllmighty: onya mate, hope it all works out well

    • Ken1977 on 27/05/2017 - 13:12

      Banks do not let parents go guarantor on a home loan unless they are both working and under 65. Just found that out the hard way. Parents in $1.4mil property and can't go guarantor as banks look bad if they have to kick pensioners out of thier home.

      • footyboy on 27/05/2017 - 18:19
        +1

        Are you looking for a guarantor home loan? PM me, I can help with no assessment on parent's income with major lender.

  • havabeer on 27/05/2017 - 12:06
    +1

    $10k saved which you're not going to use a deposit. +rent as proof of savings and asking for a 100% loan? Maybe you have been mislead, but with respect, with mortgage requirements tightening I'm not surprised you're not approved.

    definitely give it another try though with a mortgage broker it may just be their requirements were tighter than expected. Also save even harder for the next month. And avoid LMI like the plague, it's a bloody rort.

  • ACTdealchaser on 27/05/2017 - 18:40

    Hi i think you could talk so a specialised broker about it.

    My broker found a lender do a "fee" instead of LMI so they have a different criteria. I only got similar amount of yours for my first place in 2013 as I got a 95% loan with $20 stamp duty and FHOG to pay this fee

    So just google broker specialised in this to help you :)

  • striker5950 on 27/05/2017 - 22:40

    go on gumtree, search motor homes, find one for 10k, hell you will probably find a van tops

  • decr on 28/05/2017 - 08:04
    +1

    Ask RAMS to use a different lender for LMI. I had one loan with them and the LMI lender had great difficulty understanding salary sacrifice. It frustrated the hell out of the RAMS lender trying to convince their primary LMI mob to see how it'll work. It took two weeks and finally when he said he'll go with a different LMI mob they caved in and it all got approved.

    Might not work in your case but that's my story.

  • eggles01 on 28/05/2017 - 16:13
    +1

    first you contact VEDA,Experian and Dunn and Bradstreet who are Credit reporting agencies to see what your Credit score is then see if you can get a credit history report,once you have the replies you have something to show,brokers seem to act weird,I went to one last year for a small car loan,I had a Veda score of 944 out of 1200 points and 820 out of 1000 points and I was in the top 10% of borrowers but it was not enough for a $5000 car loan and was rejected but I was offered a low interest home loan,even though I am a disability pensioner since 1991 no other income and I was 74 yrs and income of $26000 p/a and had not had any credit since 1992 so work that one out,just keep googling and remember every application you make and are rejected it effects your credit score and history,find out if you pass all requirements before they do a credit check,good luck

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