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This is a topic that many lenders and brokers understand can be fraught with danger. Handled successfully, these transactions are extremely rewarding, however if things go awry, frustrations and heartache are often the end result.
So, with housing affordability at an all-time low in major capital cities, I felt it was a worthwhile time to place this topic under the spotlight, outlining when personal loans can be involved with property transactions, and just as importantly, when they can’t.
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To help, here are two mantras I’d like to highlight:
1. “Genuine savings” must be genuine savings
i.e. you cannot use a personal loan
Most Australian home loan lenders have a mandatory “genuine savings” policy. It is essential brokers clarify and evidence their client's financial position to ensure they have met the specific lenders genuine savings criteria. Many a time we’ve encountered a broker who has suggested their client’s FHOG and “cash back” from the builder forms part of their genuine savings. As a general rule, these are not classed as genuine savings, and to reiterate, nor is the use of a personal loan.
2. Differentiate “mortgage cost funding” and “deposit” each and every time
i.e. you can use a personal loan for mortgage cost funding, but not towards a genuine deposit
As personal loan brokers, we regularly see these terms being misinterpreted and ultimately causing the downfall of a property deal.
Personal loans can generally be used for mortgage cost funding. Examples include:
- Stamp Duty costs
- Fees associated with house purchase, legal fees etc.
- Shortfall in the 20 per cent deposit to offset LMI. This would be if a client was slightly over the LMI threshold and would prefer to take a personal loan rather than pay LMI. The client would have to show they had the majority of savings in place for the deposit.
In the above examples, the personal loan is assisting with the costs associated with the property purchase.
This perhaps is where some confusion occurs. In all of the above-mentioned examples, the client would still need to meet the “genuine savings” for their home loan provider, which is usually a minimum of 5 per cent. So, on this final “genuine savings” point, this would be where a personal loan could not be used.
Other ways to utilise a personal loan for property transactions
There are a number of other ways personal loans can assist prior to, or after, a property purchase. These include:
- Debt consolidation to improve disposable income position
- Post home loan costs, such as landscaping, fencing, and general property improvements
These types of personal loans shed light on the success of the broker, as a good relationship would generally need to be in place prior to the purchase of the property, or subsequently, once the settlement had occurred. This brings me to my final tip.
My final tip when considering a personal loan
Having assisted many brokers to secure personal loans for their clients, we’ve seen a growing trend with those who are successful, and it comes down to the type of relationship they have with their clients. Staying in regular contact, providing useful tools and newsletters and being involved with their client’s ongoing financial journey enables them to be front of mind at all times, and for all financial needs.
Success squarely points to the due diligence of the broker, and their dedication to being their customer’s ongoing financial partner. This is something we, at Fair Go Finance, are equally as dedicated to achieve, supporting our broker network who rely on us to source their client’s personal loan needs, from car loans to mortgage cost funding, whilst handling all the NCCP and compliance requirements. Loyalty may not be a word used or revered anymore, but we feel it’s alive as ever, but simply rebranded as “genuine partnership.”
