Obtaining finance in a new country can be challenging, and Australia has particularly conservative credit rules, which can make it even more difficult. Whilst it is not impossible, it is worthwhile understanding and being prepared for some of the things you will need to help you get a mortgage for your property in Australia.
Get Advice and Assistance
Each bank in Australia has their own risk and credit policies regarding when they will mortgage a property so it is worthwhile shopping around and speaking to a few different banks. Where one bank may say no to financing your property, another may very well say yes. Australia has four major banks, and several smaller regional banks and credit unions. It is certainly worthwhile speaking to a mix of both in your search for a lender. Credit Unions operate more like communities, and therefore you must be a member to be considered for a loan with them.
It is also worthwhile using a finance broker to help you choose a lender, and get through all the red-tape. Brokers generally know a lot about the lending policies of each organization and will be able to suggest the lender and loan that is best for you. They will also help with all the paperwork and formalities.
If you don’t want to take the risk of purchasing a property and then finding out it is difficult to obtain finance, you can get a formal document from the bank called pre-approval. This is more than just an “in principle” indication of how much you can borrow, and actually will give you peace of mind that a certain amount will most likely be approved for your property purchase. To obtain a pre-approval you first need to select a bank and make an application. This will involve quite a lot of paperwork and may take a few weeks to be approved, but it will be well worth it for the peace of mind.
Have a Deposit:
All finance purchases in Australia, especially for someone who is a foreign citizen or holds a temporary or permanent residency visa will require a deposit. Generally, a higher deposit is required the more someone is considered to be a “risk” to the bank.
Each bank differs in its own internal policies on how much deposit it requires, but generally if you live overseas, are a foreign citizen or hold a temporary visa only and have been in Australia for less than 12 months you will need at least a 20% deposit. In some situations you may require a much higher deposit, such as 40%, particularly if you are running a relatively new business in Australia. If you have been in Australia for over 12 months working or are on a permanent residency visa you may be able to borrow up to 90% of the value of the property, but this is not always possible.
Generally the higher the deposit you can contribute towards the property purchase, the easier it will be to obtain financing with a bank, as the risk to them is much less. Also don’t forget that the purchase price of your property will include a host of other costs such as stamp duty, which will also need to be covered along with the deposit.
Another factor to consider if you need to borrow more than 80% of the value of the property is Lenders Mortgage Insurance. All banks will require you to take out this insurance policy (at an extra cost of course) if you need to borrow more than 80% of the value of the property. This will cover their risk (and yours) if property prices move beyond the value of the mortgage in the event of a default.
Have Information About Your Credit History Overseas:
Generally speaking any credit history that you have in your country of origin will not hold too much weight when an Australian bank is looking at your mortgage application. This is the same regardless of whether you are from a comparable financial system like the UK or from a developing country, so don’t be alarmed. There is limited access to foreign credit files in Australia, and generally your Australian credit history is all that is looked at. If you have information on your credit history overseas, it is worthwhile bringing it along and speaking to your lender or broker about it though.
Of course on the flip-side, if you have a bad or patchy credit history in your country of origin, then the Australian banks are unlikely to be able to see this either.
Look After Your Australian Credit History:
If you have not spent much time in Australia, you may have had little chance to build a credit history there or damage one. Generally, the credit history that is looked at by lenders is based on “negative” credit issues. For example, if you have a telephone under your name and you forgot to pay the bill one month, this may show up as a negative in your Australian credit history. If you apply for credit a lot (such as credit cards) and are turned down, this may also show up in your credit history. So it is best to positively look after your credit history in Australia from the moment you arrive. This means paying all your bills on time and only applying for credit when it is absolutely necessary or when you are certain you will not be turned down for it.
Details About Your Australian Income:
Your Australian income and the funds you have in Australia will be key to whether you obtain a mortgage in Australia. In particular the current income you have available in Australia, and your expenses both in Australia and overseas will be considered. If you are employed, then factors such as how long you have been employed, your visa status and the type of contract you are on will also be considered. If you do not have a permanent employment contract, you may find it more challenging to convince a bank to lend you money beyond the term of your employment contract. Similarly if you have a temporary visa, banks tend to be more reluctant to lend money past the duration of your visa.
Details About Your Foreign income:
Whilst you may have significant wealth overseas, Australian banks do not tend to look at this with a high degree of weight, or in some cases at all. They tend to focus on the income you have at your disposal in Australia, so if you can transfer funds to Australia then that will help your mortgage application a lot more than keeping it overseas. Some banks may accept foreign income though, so it is worthwhile checking with them first.
Eligibility for the First Home Owners Grant:
On a final note, the First Home Owners Grant (FHOG) is a government incentive that contributes up to $7,000 towards towards the purchase of your first home in Australia. The scheme differs between States, so it is best to speak to your local state authority or broker to determine if you are eligible for it. Generally permanent residents may be eligible for the FHOG, however temporary residents and foreign citizens are not.
Obtaining finance anywhere is daunting, but it is an important step in getting you closer to owning your dream home. With a bit of planning, you can at least ensure you have the best chance of being approved when you go in to see your financier.