As a first time home buyer, borrowing money from a bank is like learning a foreign language for the first time. What does this payment mean? How do I budget for my deposit? Can I truly afford my dream home?
Regional Australia Bank lending specialists Karen Frost and Theresa Moulynox have guided dozens of members through the home loan application process.
They share their tips about applying for a home loan as well as their favourite first-time home buyer stories.
What problems do first time home buyers face when it comes to getting a mortgage?
Karen: The top problem would be finding the money for a deposit and getting that organised, especially if they are renting or living at home. They also need a plan set in place to save for that deposit.
Another problem is trying to get rid of personal debt, such as personal loans, credit cards and car loans. The last issue is a lack of knowledge on how to obtain a loan.
They have questions such as "What to do? Where to go? Where to start?" Not everyone has a mum and dad at home who have a good understanding of that process. So that's where we come in and help with that.
Theresa: The lack of knowledge can create a sense of fear about the process. That's where we come in to use our professional know-how to help take away that fear.
We often see people who have been rejected by other banks for their home loans. But rejection can come in two ways. You can say no to somebody, or you can say "No, you're not ready" and give them a plan, even at the early stages.
What are the big myths we need to debunk about home loans?
When we explain how much the loan repayments are, people quite often say "We're paying that amount in rent" or "We're paying more than that amount in rent." That's a big bonus for them.
Karen: I think the biggest myth about getting a home loan is that you only need a 5% deposit of your savings. You also need to have your mortgage insurance premiums included and some legal fees included in that 5% deposit figure.
We need to confirm that when we get to a settlement, the solicitor or conveyancer who's representing that member is going to get paid for their services. There's also application fees, evaluation fees, and getting a building and pest inspection done.
Theresa: A common myth is that people feel they can add their personal loan to their home loan. People also don't understand how the process of securing a loan works, such as whether a bank can only lend money up to a certain amount, such as 95% of the funds against secured property.
Karen: When we explain how much the loan repayments are, people quite often say "We're paying that amount in rent" or "We're paying more than that amount in rent." That's a big bonus for them.
How do you help customers get a home loan?
Karen: Any member that comes into Regional Australia Bank won't be left walking away without a goal in place. If it's an application that we really can't help them with, we won't waste their time by saying we can do this.
I'll be honest with them and say we need to do this course of action and put together a plan. There will always be a plan in place to minimise rejection because we don't want them going home thinking that their first home dream has gone out the window.
Theresa: I learned personally at Toastmasters that it's like the Sandwich method of feedback. When you give feedback about their home loan application, you start with something positive, like it's great that you know this is what you want to do and that you have some savings. Then you say that you need to save more money. And then you end with another positive.
What do customers need to be aware of during the home loan application process?
Theresa: When we assess a home loan application, we're very keen on looking at how people are spending their money without being stickybeaks.
I tell people that I'll need your last six months of statements. You'll provide your cost of living on a weekly or monthly basis. We do use your statements to verify your spending because we want to be sure that you are in a position to buy your home.
Karen: Have your statements ready. We will go through your statements, noting the start and end balance each month, as well as payments to any loans or credit cards. That's where they need to be prepared by not having so many Afterpays.
If you continuously use those services, we take that spending into account when determining a home loan.
I find that members struggle to answer my questions about their living expenses weekly, such as food, travel and clothing so that they can budget for the mortgage repayments. They have no idea of what they spend their money on, so it's an educational process too.
Theresa: Sometimes, I ask people to consider what they think they could afford to pay on a home loan every week.
How can people maximise their chance of getting a home loan approved?
I show members what they are spending their money on or where they could be saving. We cannot be a financial advisor or planner, but we are still helping them. People may not know what they need to do. It's about getting that plan into place.
Karen: Come in and have a chat! People don't have to be committed to anything to come in and speak with us. We will help them set up a plan and a budget - that's one of the most rewarding things that I do.
I show members what they are spending their money on or where they could be saving. We cannot be a financial advisor or planner, but we are still helping them. People may not know what they need to do. It's about getting that plan into place.
You don't have to have a credit card or personal loan to show your affordability. You need to have dedicated savings.
Put it away in an account you cannot see, and you don't touch. It will build up. It's savings for you, and it's showing affordability for the repayments. If you can show that affordability for the repayments, nine times out of ten you will be approved.
Theresa:
I've been helping a lot of younger people with their home loans in the past few months, and I'm looking at their accounts with all these funny names, like the Fire Extinguisher account.
They're all reading the Barefoot Investor. So they do need to get that type of structure to their accounts. Sometimes, they're not sure about whether they can apply, but when we see that type of structure, we know they're on their way. It might not be right now, but they're definitely on their way.
How about asking parents for help for a guarantee so that the application is more likely to be approved - how do customers feel about this?
Theresa: The way we structure our loan is to enable us to say to our members we're looking after both your parents and your interests. It's important for first home buyers and their parents that we're not here to put anyone in a place of hardship.
We find that parents say they're willing to help them, but they've been coming to us to find out what does this all mean? What does it mean, for Mum and Dad? What does it mean for us? A lot of the time, if it's possible, they would prefer to stand on their own.
Some people realise they cannot do this on their own right now and they want to do it right now.
They've been saving since 2013 as their income has increased and more money has gone to their savings. We need to instil confidence in them as a borrower to be able to say, "Mum and Dad, we've done all this saving, can you help?"
Karen: If it's a HeadStart Family Guarantee Home Loan, the way we structure a loan is to have a parent as a guarantor using the equity in their home. We're not tying up the whole home. It's only about 20%. They're not locked in for 30 years, like a home buyer.
Their portion of the loan will only be for a maximum of five to seven years. It's only for that portion of the deposit. It's a big commitment to a parent, but it's not as big as what they may have thought.
Tell us a story of one recent customer that you helped and how they achieved their goal of a home loan.
Its a case of listening and empathising. At Regional Australia Bank, what we're doing is not putting you in a position of hardship.
Karen: Peter and his family had nearly $40,000 worth of personal debt. We consolidated the debt and paid it off in 18 months and still saved for the deposit.
They had a bit of help with the $15,000 from Peter's mother. When Peter rang me and said they had only $400 left to pay off on the personal loan, I wasn't surprised. I wasn't shocked as I knew that they could do it. I was so proud of them.
We devised a plan to pay out that debt and looked at what the repayments on a home loan would be for a purchase price of $300,000. Maybe they're now ready to build their dream home, so that's like $412,000. You have shown "affordability for a home loan". So I said let's do this application.
Even if it was declined, I would have fought tooth and nail for it. We had a plan in place, and they followed through, and that was awesome.
That's where the personal factor comes in. You can sit with your customers and devise a plan. They're sitting across you.
You might have the kids sitting in the office and playing with the toys. You've got the eye contact. It's a family thing. You pay down this personal debt. We get you the home loan. These are the repayments. If you've been paying out this debt, instead of 20 years, we can do it in 12 or 5 years.
Theresa: Peter's family have taken ownership of the personal debt, but we have as well. You travel the path together. You know that you're not alone.
Karen: You use words like "we". It's a joint effort. The most important thing is to come and talk to somebody, and we'll get it sorted. It might take five years, especially if you've got a young family. But you can get there.
Theresa: When Emily came in, I remember that she was quite nervous because she was scared. But I listened to her and told her, that's fine, I can understand your fear.
I asked her what her primary concern was. It was a case of listening and empathising with what she was feeling. At Regional Australia Bank, what we're doing is not putting you in a position of hardship.
You see emotion all the time with many borrowers. Sometimes you can see the relief that someone else has said to them that they're not ready. They know in their hearts that they're not prepared for this, but they need someone to say it to their face.
They need to write down their goals and say to them, "OK, what do you want to achieve in the next 5-10 years". Write down what you want to achieve in the next 5-10 years. There are certain things that we need to do, such as having a household budget and getting debt paid off.
But we also take them back to the goal and say to them, "What are you trying to feel when you've reached that goal? What are the feelings? What is it going to mean for you?"
They are going to leave our office and say they are going to do it. It's not just about writing something down. It's going to be how they feel about the goal.
What is most rewarding about helping customers with their home loan applications?
You feel honoured and humbled. You look at some of these first-time buyers and how hard they've worked. I often say to some of them, "I could never have done this at your age." I am in awe of them.
Karen: The best part of helping members is seeing and hearing their excitement when you tell them that their home loan is approved. And calling them after settlement to congratulate them. I always say, "You're a homeowner now!"
I never thought I would ever buy my own home. It didn't cross my mind. When you get into your first home, it's so exciting. That's the driving factor for me. I get more excited than our members. I will do a "high five" around the office when I get a home loan approved.
Theresa: I've had quite a few lovely experiences with young borrowers recently. One of them was as young as 18. Sometimes I laugh and go, "You must think I'm like your mother!"
I think we can still build confidence and show professionalism as well as showing that we are nurturing and caring. Sometimes you have to say a harsh word to them.
Karen: Especially when you're giving advice, like maybe not have so many ZipPays or AfterPays.
Theresa: Often, the parents can ring you about their child's application, but we can't disclose what we discussed. But sometimes there are little things they mention that the kids don't refer to us that could affect the application.
It's a real personalised experience. You cannot lend money to people without being involved in a human sense.
You feel honoured and humbled. You look at some of these first-time buyers and how hard they've worked. I often say to some of them, "I could never have done this at your age." I am in awe of them.
I say: "It's wonderful and thank you for letting me part of this process." By this stage, you know them pretty well, and you know what their goals are. This is only the first home. It's an opportunity also to tell them that you're proud and happy to be part of their next step.
