Why do you need so much information?

We know it feels like a lot, but by having this information upfront, it means that we are able to provide you with an accurate assessment of your borrowing capacity.  The lending landscape has changed greatly, especially over the last few years since the Royal Commission dated 4^th February 2019 and, as such, lenders are under far greater scrutiny to ensure they are lending responsibility and not putting you, the client, into a position of hardship.

I don’t have a passport, is there something else I can provide?

Yes, in lieu of a passport we can accept a birth certificate.  This needs to be the full birth certificate and not an extract.  If the birth certificate is not in English, then we also require a certified English translation.  Please note, if your name has changed, we will also require any change of name certificate, such as Deed Poll or Marriage Certificate

What is an Income Statement and where do I find it?

Income Statement has been called a number of things over the years.  Most recently it’s been referred to as a PAYG payment summary and prior to that it was a Group Certificate.  These days, if you are a PAYG employee, your income is reported directly to the Australian Taxation Office (ATO).  Income Statements are available online through the ATO portal on your MyGov account (my.gov.au).

Once you have logged into the ATO portal, you will able to view your income statements.  It’s important that you capture all the detail on the screen.  Lenders will need to see your name which is included in the top right corner as well as having the ATO logo.  We highly suggest printing the page to PDF and saving to your device as this will ensure all details required by lenders are there.

Where can I find my HECS and Help statements?

Just like your Income Statements, your HECS and Help statements can also be found in the Australian Taxation Office (ATO) portal on your MyGov account (my.gov.au).  Generally, you will have access to these statements straight from the ATO home page.  Again, we suggest printing this to PDF and saving to your device to allow you to send more easily.

Do you really need my superannuation statements?

Superannuation is an important asset that you will most likely rely on in your retirement.  Depending on your age, if you are seeking a loan term that takes you past the age of your proposed retirement, then lenders want to see that you have an exit strategy in place that will see you clear of debt and own a property in which to live.  Superannuation plays an important role in exit strategy to payout and clear debt at retirement.  If you are aged 45 or over, lenders will request proof of your current superannuation balance.  You are also able to access an approximation of your superannuation balance through the Australian Taxation Office (ATO) portal on your MyGov account (my.gov.au).

It’s possible that not all of your superannuation is captured here.  You would also receive annual statements from your superannuation provider and it is also likely that they will have an online portal where you can access your most up to date information.

Is the BankStatements.com.au process really safe?

Who better to hear it from than the horse’s mouth…  Security is in our DNA

We understand and value your privacy which is why we take all precautions to ensure information you share with us is protected and secure.  We would never ask you to do something that we didn’t feel was safe.  Illion Australian Pty Ltd is the owner of Illlion BankStatements.  Illion are also a credit reporting agency.  One of a few trusted to collect your personal information as well as information pertaining to your credit enquiries, writs, judgements, bankruptcies and repayment history.  Using this service is actually more secure than downloading your statements and sending to us via email.

Lenders are extremely particular about the age of account history when it comes to statements, this service is an easy way of getting us the information the lenders need with no fuss.

What is Loan to Value Ratio (LVR)?

Loan to Value Ratio (LVR) is your total loan amount represented as a percentage of the value of your property.  Lenders use the LVR to determine the risk factor associated with your loan.  The higher your LVR, the greater risk you pose to the bank.

How do I calculate my LVR?

The Loan to Value Ratio is calculated by dividing the loan amount by the purchase price or valuation of the property you’re buying, expressed as a percentage.

For example, let’s say that you’d like to borrow $552,500 and the property price is $650,000.

The LVR of the home loan would be calculated like this:

($552,500 loan ÷ $650,000 property value) x 100 = 85% LVR

How is the property value assessed when calculating the LVR?

Lenders have valuations completed on properties and use these values to calculator the LVR.  If the purchase price is higher than the bank valuation then the lender will always use the lower of the two to determine the LVR.

Impact of the Loan-to-Value Ratio on your home loan

The lower your LVR, the more favourably lenders look upon your loan.  Having a LVR 80% or lower, allows you more scope for negotiating on rate, saving you money on interest over the life of your loan. 

Lenders will also apply different LVR criteria on loans depending on the location of your property and your Debt to Income ratio (DTI)

If your loan is higher than 80% LVR, then lenders determine the loan to have greater risk and will generally require you to obtain Lenders’ Mortgage Insurance (LMI) to further secure your loan.  This is insurance that protects the lender if you default on your home loan repayments.  This is an added cost of your home loan, which can result in a higher loan repayment.

Will the LVR affect my monthly loan repayments?

As well as its potential impact on whether you need to pay for LMI, your LVR will generally dictate which loans you are eligible for, and the interest rate that will be attached to those loans.

Because a higher LVR generally poses a higher risk to the lender, they may charge a higher interest rate to borrowers with smaller deposits, or simply exclude borrowers with high LVRs from being able to apply for certain loans.  Some financial institutions also offer different interest rates on the same home loan, in line with a range of different LVRs. This means that different borrowers could end up paying higher or lower interest rates on the same loan depending on their LVR, with lower LVRs typically meaning lower interest rates.

The higher your interest rate, the higher your loan repayment.  It’s always important to look at your proposed loan repayment and see how it would fit in with your monthly budget to help determine whether borrowing at a certain level is right for you.

What are the potential pros and cons of trying to have a low LVR?

It’s a fact that having a lower LVR saves you money over the life of your loan, but there may be some drawbacks to consider before you make a decision on how you wish to proceed.

Pros

• The larger your deposit, the lower your loan, this in turn leads to a lower repayment. Having a lower loan also means less interest paid over the life of the loan.
• You may receive a more competitive interest rate on your loan.
• You typically would have a wider range of lenders and products to choose from, particularly if your LVR is below 80%.

Cons

• Saving a larger deposit, especially if you are renting, can take a significant amount of time. This in turn can delay the purchase of your home and extend the time it takes to get you into the market. This delay could then see property values increase and put you out of the market in the area you wish to live.
• Putting all your savings towards having the lowest possible LVR can mean that you don’t’ have those funds for other things, such as a rainy day fund or even investment for your future.

What is Lenders Mortgage Insurance (LMI)?

Chances are, if you’re borrowing more than 80% of the value of your property, then you’ll need to pay Lender's Mortgage Insurance (LMI).

Saving that elusive 20% deposit can seem almost impossible, but you can purchase a property with as little as 5% deposit if you’re willing to cop an additional fee: Lender’s Mortgage Insurance (LMI).  While LMI may not seem like a benefit to you (and how could it since it only protects the lender) LMI can actually help you get into the market much sooner, and with prices on the rise, sometimes it’s a necessary evil.

LMI is an insurance policy that covers the lender against any losses they may incur if the borrower defaults on the loan. LMI does NOT cover the borrower - it only covers banks and lenders.  

There are two main LMI providers in Australia: Genworth Financial and QBE.

How much does LMI cost?

Depending on your LVR, LMI can be a big expense and can cost anywhere from a few thousand dollars up to tens of thousands of dollars.

The cost of LMI can vary based on a few factors including:

• If you’re a first-home buyer
• Which state your property is in
• If you’re an owner occupier or investor
• The size of the loan
• Your loan-to-value-ratio (LVR)
• Your job/industry
• Your chosen lender

As a guide, using the Genworth LMI calculator, below is an estimate on how much LMI could cost you depending on the property value and the size of your deposit.

Property value	Deposit $	Deposit %	Loan term	Upfront LMI premium
$400,000	$20,000 $40,000 $60,000	5% 10% 15%	Up to 30 years	$11,897.45 $6,943.91 $3,770.13
$600,000	$30,000 $60,000 $90,000	5% 10% 15%	Up to 30 years	$23,954.25 $13,284.00 $6,463.09
$800,000	$40,000 $80,000 $120,000	5% 10% 15%	Up to 30 years	$31,939.00 $17,712.00 $8,617.45

These estimates are guide only for first home buyers on an owner occupied loan as at 24th January, 2022.

It’s important to remember that all lenders use different insurers and also have different agreements in place with the various insurers which can result in different costs of LMI being passed on to you.

How to avoid LMI

The most common way to avoid LMI is to have your 20% deposit in place.  It’s also important to take into account the fact that not only will you need your 20% deposit, but savings to cover associated costs with your purchase, such as stamp duty, titles office fees, legal costs and other sundries.

There are a couple of ways to avoid LMI altogether, and if you can, why wouldn’t you?

Use your profession to your advantage. Some lenders have what they call Professional LMI waivers.  Those employed in the medical, accounting, finance or legal fields who are degree qualified may be able to avoid paying LMI within certain parameters.

Government Schemes and Grants. With Government Grants like the First Home Loan Deposit Scheme (FHLDS), first home buyers are able to purchase a property with a deposit as little as 5%.  The Government acts as a guarantor, so the borrowers don’t have to pay the LMI.

Have a guarantor. If you have a parent who has lots of equity in either their home or investment property, then you may be able to have a guarantor loan to get around paying LMI.  This option also can allow you to borrow 100% of the purchase price plus also lend you a little bit more to cover the costs of the purchase, like stamp duty, titles office fees, legals etc.

Apply with certain lenders. Some lenders offer discounts or even waive LMI fees for some borrowers.  Lenders like Citibank, ME Bank and even St George have had either reduced LMI fees or waiving LMI for loans with an LVR of up to 85%.  Lenders put out special offers from time to time so it’s always a good idea to check in and see what’s on offer as it could save you thousands.

What is Debt to Income Ratio (DTI) and why does it matter?

Debt to Income Ratio (DTI) is simply your total debt level divided by your total gross annual income. 

Your debt is the total limit of everything from your home loan, personal loans, car loans plus also things you may not consider such as HECS, limits on credit cards (not just what you owe) as well as any balances on interest free lending you may have.

Your Gross Annual Income is all income earned in the household, this includes all employment income both PAYG and self-employed, rental income, bonuses and commissions, Government income etc.

If you earn $80,000 per year and have a credit card of $6,000 and a home loan of $400,000 (D) then your DTI is 5.08, meaning you owe 5.08 times what you earn.

DTI is a tool that lenders use to ensure that they are following responsible lending by ensuring that they are not letting clients get themselves in too much debt.  By limiting the DTI of lending, they can ensure that you don’t exceed more than 40% of your total income on loan repayments.  This should then ensure that you aren’t over exposing yourself and means that you should be able to comfortably afford your loan repayments and therefore any kind of financial hardship. 

Does DTI affect how much I can borrow?

Yes. Many Australian lenders use DTI to limit how much they will lend to clients.  For instances, most will no longer lend if your DTI is 7 or over and even over 6 they will impose certain restrictions, like reducing your Loan to Value Ratio (LVR).  Regardless if you can afford the loan on paper, if your DTI is too high, lenders won’t approve your application.

Are banks flexible on DTI limits?

Lenders are becoming even more black and white and therefore they hold firm to their limits.  Mitigating factors asking lenders to go over their DTI limits have to be pretty compelling and it would be rare for them to do so.

As at December 2021, APRA stated a debt to income ratio over 6 is risky lending. Over the last few years many clients have taken advantage of low interest rates which has seen a rise in people taking out larger and larger loans.  A report released by APRA in September 2021 stated that over a quarter of Australians had a DTI higher than 6.

Do all lenders use DTI assessment?

Pretty much. Some lenders apply hard and fast rules, while others will allow you a little bit of leeway.  Speaking with one of our brokers will take the hard work out of finding a loan that is going to suit you.  We know how to navigate the murky waters of fitting income policy to security policy to DTI limits with lenders, all of which are looking at together to determine your ability to borrow.

What is Comprehensive Credit Reporting (CCR)?

On 1^st July 2021, the Australian lending environment changed.  Comprehensive Credit Reporting (CCR) was fully rolled out across  the lending landscape with the ‘Big Four’ of Australia’s banks (ANZ, Westpac, CBA and NAB), together with Large Authorised Deposit-taking Institutions (ADIs) being mandated to comply.  Large ADIs refer to financial institutions with residential assets over $100 Billion average over 3 years. It includes banks (Macquarie), credit unions (Great Southern Bank), and foreign subsidiary banks (HSBC, Citi etc.).

Many lending institutions are now required to share more information about your credit history to credit reporting agencies, such as Equifax , Illion and Experian Credit Services.  The information includes the type of credit, as well as providing your repayment history over 24 months along with other information. 

Before the introduction of CCR, only negative credit information was provided to credit reporting agencies, such as defaults and judgements.  CCR is a far more complete picture of your credit history.

What information is available to lenders with CCR?

Your credit file includes basic information, such as as your full name, date of birth, gender, address, previous address, drivers licence number, employer and former employer. 

As before, the information on your credit file lists any credit applications in the last 5 year period.  The credit type and loan amount you applied for has always showed on your credit report, however, previously it only showed as an application made. 

Financial institutions are now able to see the outcome of the application.  Once the application is approved, the type of credit account, the institution where it is held and the credit limit are now on display.  CCR now also includes opening and closing dates for credit accounts along with 24 months repayment history. 

All negative information such as defaults and court judgements, writs, bankruptcy and Part IX agreements are still available in the report.

If your payment is late by more than 60 days and the amount you owe is over $150, then a default will be listed on your file and will remain there for 5 years. 

Will CCR impact my credit score?

Yes, but as everyone is different, the effect of CCR will show differently on people’s credit files.

What happens if I don’t make payments on time?

Following the introduction of comprehensive credit reporting, your credit score can drop by 22% following just one missed credit card repayment, according to a report by Experian.

This drop increases to 26% with two missed credit card repayments, and a staggering 42% for those with three or more missed credit card repayments within three months.

Under positive credit reporting, payments of any amount that is more than 2 weeks overdue are listed as late on your repayment history information.  This is known as the 14-day ‘grace period’.

Tip: If you’re able to pay the late payment within the grace period, there will be no late payments recorded on your credit file.

Where can I access my credit file?

You can access yourself for free directly from one of the three credit reporting bureaus.

They are:

Equifax (previously Veda Advantage): 138 332

Illion (formerly Dun & Bradstreet): 1300 783 684

Experian Australia Credit Services 1300 734 806

As mortgage brokers, we can access your credit file without leaving a credit enquiry on your file.

What are undisclosed debts?

One of the major changes that CCR has brought about is the ability for credit providers to gain information in relation to liabilities and limits associated.  Lenders use this information on the credit file to check against your application to ensure that you have disclosed all your liabilities.  

What many people don’t realise is that when they take out interest free finance, there is often a credit card with a credit limit opened.  You then go on to payout your interest free finance and the credit card in the background is long forgotten.  So it’s often not disclosed in the process of applying for credit.

Undisclosed debts are not favourably looked up in any kind of application for credit.  This is why we always complete credit checks as part of our process to ensure that we cover off on that long forgotten credit card.

What is the Repayment History Information (RHI) reporting system?

Credit providers have been providing credit reporting agencies with repayment history information monthly since July 2018.

This information shows whether you’ve been on time with payments on your credit facilities over a 24 month period. 

What does each CCR code mean?

The codes are set out under the Australian Credit Reporting Standards (ARCA) and are a quick way for lenders to scan your repayment history.

O:         Account paid on time

1:          0-29 days overdue

2:         30-50 days overdue

3:         60-89 days overdue

4:         90-119 days overdue

5:         120-149 days overdue

6:         150-179 days overdue

X:         180+ days overdue

C:         ‘Account is closed’

A:         ‘Not associated’

R:         ‘Not reported’ – the bank or credit provider didn’t provide payment history for this period, which is a fault with the credit provider, not necessarily you as an account holder.

P:         ‘Pending’ – purchases made with a credit or debit card that are pending (for up to 5 days) but have been deducted from your available funds until the merchant finalises the payment.

O:         ‘Other’

T:         ‘Transferred’ – a balance transfer of your debt with one lender to another usually to save on interest repayments on a credit card or store card.

What can I do to help with any credit application?

Ensure your credit file has accurate and up-to-date information:   We can help you by obtaining a copy of your credit report and going over it with you.

Ensure you don’t miss any repayments:   Direct debits are the best way to make sure that you don’t miss a beat on your loan.  Try and setup direct debits to come out for the day after you get paid, so that you know that there is always money in the account.

Close any unused credit facilities:  Close down any unnecessary credit cards or other loans that you no longer need.  Make sure to keep electronic copies of closure letters as you may need these to prove you have closed the facility.

Don’t make multiple applications for lending:  We find that many people apply for car loans or credit cards make multiple applications with different lenders before making a decision which one to use.  Make sure you do your homework first and only apply with the lender you wish to be with.  Having a busy credit report lowers your credit score. 

Never overdraw your accounts:  Make sure your savings account always has funds to be able to cover any direct debits and always keep your credit card within it’s limit.

Always use references for your transfers:  Not just for your own memory, so that lenders can also see how you use your money.

Employment and residential history help with your lending:  Lenders also have a scoring system that they use for applications.  If you are thinking about applying for a loan, just sit tight in your current job and home and you can make any decisions about future changes after settlement.

Prove that you are a good saver:  Regularly transferring money into savings and keeping it there is something all lenders love.  It doesn’t how small the transfer is, so long as it’s consistent and your balance is continuously growing.

Don’t be afraid to ask for help:  The biggest mistake people make is to not talk to their credit provider when they can’t make their repayment.  Lenders want to help you to pay back you loan, even if this means making changes in the short term to help you through.  By keeping your lender in the loop, it will keep your credit report clean and will make a stressful time a little bit easier.

How can we help?

With over 60 different lenders on our panel, we know how to read your report and who best to speak with regarding your personalised lending requirements.  Having us do your homework means that you will avoid unnecessary enquries on your credit file.