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Getting a Mortgage when you have bad credit

A lot of people only find out they have a credit history issue after applying for a mortgage and being rejected because of what the lender found on their credit report.
But having a poor credit history does not mean you have to wait to get into (or
back into) the property market.

How do you get a bad credit rating?

Every time you apply for a loan – from a credit card to a car loan up to a mortgage for a house, the lender will look at your credit history. Every time they do they leave a record of what, and how much, you are applying for.

If you fail to pay a supplier (such as the phone/electricity company), someone who has provided a service, or a lender they can lodge an entry on your credit report which tells anyone doing a credit check after them that there is an issue. Even when paid,
the item remains on your history for up to 5 years.

If you apply for a mortgage and this type of issue is discovered, the banks may decide not to lend you the money.

The good news is that there are lenders who will potentially allow you to borrow even if you have multiple credit issues. Also, providing a standard bank a reasonable explanation about the reason for the credit issue may mean we can get a mortgage through
traditional channels straight away.

This means that you can possibly get back into the property market now instead of waiting for up to 5 years, or you can save that property you own and would love to hang on to.

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Low Doc and No Doc Loans

These types of loans would be suitable if you are one of those people who can not provide the type of documentation normally required by lenders to show that you can afford to make loan repayments.

For example, if you are self-employed you may not have the necessary two years of complete financial records.

What’s the difference between the two?

Lo-Doc Loans
This a loan provided on the basis that the you declare what you earn by way of a bank statement and/or GST returns instead of proving what you earn by way of standard income documentation.

  • Offered through defined channels
  • Up to 70% loan to value borrowings
  • Term up to 30 years with up to 5 years Interest Only
  • Must have been at least 18 months in current business
  • Stated income must be within industry benchmarks
No-Doc Loans
This is a loan provided on the basis that the lender relies on the equity you have in a property instead of you having to provide income proof or declare an amount.

  • Up to 65% loan to value
  • Term 3 months to 2 years

The loans described above are not for everyone, and tend to come with higher interest rates, but they fill a gap for certain borrowers who meet the criteria.

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Mortgages for the self employed

Self employed and looking for a home loan?

We know that there are different challenges facing you as opposed to people that earn a salary or wages.

Firstly, being self-employed means that your accountant will try to present your financial accounts in a way that reduces the amount of tax you have to pay.

Unfortunately, this is usually the opposite of what you need to show to get a mortgage from a bank.

We are experienced in reading financial accounts and have skills in extracting a number of items within them that can be added-back into the income side. On top of this we understand that some banks are happier to take self-employed income than others and will also allow just one-year of trading results instead of two or more.

If you are self-employed and thinking of purchasing, get in touch with us – we’d be happy to help.

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Business Loans

We understand that purchasing a business is a tough time for anyone. The costs associated in establishing a new venture come at a time that it is usually earning the least for you.

At Edge Mortgages we have helped many clients with funding and cash-flow for both young and growing businesses. We have a number of sources covering all areas of business funding to help in the process.

If you are thinking of purchasing a business or expanding one you already own, give us a call to discuss the best way of funding this.

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Developments and Large Scale Commercial Finance

For very large projects we can arrange funding through a finance company.

Finance companies occupy the space which trading banks see as too risky.

They enable projects, both large and small, to go ahead and develop to a stage where the trading banks can see merit in taking the deal over.

Finance companies provide a great alternative to more conventional funding lines.

  • They are short-term funders – generally 6 months to 2 years maximum.
  • They have higher interest rates and fees as they know they have a limited time frame to earn from a deal.
  • They often rely on a “take-out” to help approve a deal i.e. where there is a defined end-point to a project such as a sale of a property or a refinance by a bank.
  • With a take-out in place there is often much less emphasis on proving income if the equity in the project is sufficient.
  • There is the ability to capitalise interest and fees through the project so the costs are all contained within the debt.
  • They work well for “Property Traders” where they are happy for people to turn-over properties regularly for a profit when the banks are not designed to do this.
  • They can help “cleanse” a deal where there could be some credit issues or payment problems which mean a bank is unwilling to take a client on. After 6 months of proven payments with a finance company it is often a lot easier to refinance back into a mainstream bank.

Given a lot of negative press around investing in finance companies, many people are still not willing to deposit their funds with them – but they should never be counted out when it comes to borrowing from them for specific projects.

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Commercial Property Finance

Getting lending for commercial property is a little different from getting a home loan.

The drivers behind commercial property are different – and often less emotional – than a place that people live in. As a result, the criteria surrounding much of the funding in this area has remained largely unchanged over the recent years.

The basic level the trading banks promote is a 65% loan to value ratio as a maximum, but the fact is that there is the ability to borrow up to 100% of an owner-occupied commercial property.

The costs for commercial loans are higher than residential.  As a guide they would be anywhere between 1% more than residential rates to 2.5% more.

As with residential lending, every bank looks at commercial property funding in a different way and have their own views on how much they will lend against it, given a range of conditions such as location, type, strength of the lease or owner-occupier and industry.

The key is to have it arranged before going unconditional on a new purchase – and this is especially relevant for commercial property. There a many more aspects to funding commercial property than obtaining lending against residential security.

If you are considering purchasing commercial property, give the friendly experts at Edge Mortgages a call

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Bridging loans

As the term suggests a “bridging” loan is one that joins two places – in this case, property.

Often when you are buying your second (or subsequent) owner-occupied property you need to sell the property you are currently living in to fund the deposit on the new place you have purchased. Ideally, the timing works so that you sell your current home on the same day that you purchase your new one but sometimes the timing does not allow this to happen.

When the sell-buy timing does not line up there are two, distinct, types of bridging loans.

Closed Bridge

This situation occurs when you have sold your current property unconditionally and have a defined settlement date for it. At the same time, you have purchased a new property and this purchase settles before the sale of your current property.

For the time between you moving into the new home and selling your current one that you own both properties – and carry the debt against them as well. This presents a unique situation for the bank in that you may well be carrying too much debt, for that period, as judged by what the bank says you can afford. This is effectively breaking their lending rules, but it is allowable (under certain circumstances) because we can prove to the bank that this will be for a specific period only and when you settle on your old property the debt load will return to within the allowable limits.

Open Bridge

This type of bridging loan happens when you’ve purchased a new home with a set settlement date, but you have yet to sell your current property. You still need the funds for both properties, but the problem is that you do not know how long you’ll need them as you have no definitive date for the sale of the current property. This presents a lending problem for the bank as they would be lending you extra funds with no guarantee of timeframe when it would be paid back.

Currently, the trading banks do not lend in this situation.

There may be other options available using other lenders for example so if you are faced with either of the above scenarios then please get in contact.

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Low Deposit Home Loans

We know how tough it is to get into your first home.

Changes implemented by the Reserve Bank mean that trading banks restrict the ratio of lending they approve to people borrowing over 80% against a property (have a deposit that is less than 20% of the property value).

We can still get lending for borrowers who need to borrow more than 80% against an existing dwelling they will reside in. We can arrange up to 90% through a trading bank and there are other lenders – outside of the main banks – who we can arrange up to 90% through. In either of these circumstances the funders are very choosy about who they will lend to at this level.

Often you will get one chance to get it right when applying for lending over 80%.

We make sure we present the deal in the best possible way to give it the best chance of getting approved.

Other exceptions to the rule include building your own home through traditional means – where we can get up to 90% and buying a home off-plans via a “turn-key” contract where we can up to 95% finance. You can read more about these options here – Building and Construction Finance.

There are different ways of getting you into that first home and, whilst it is tougher to get there right now because of the rule changes, we know what we’re doing and work hard to tailor solutions to our client’s circumstances.

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Lifestyle Properties

More of us are leaving the packed city-life for our dream lifestyle property than ever before.

There are some very strict guidelines for how the banks measure how much they will lend against a lifestyle property and each differs in how much they will lend.

The common guidelines for what constitutes a lifestyle property are that it needs to be less the 10 hectares in size and it cannot be “income producing” (from the point of view that cattle or agriculture is farmed there, as examples). Any time that income is derived via use of the land it can put it into the category of “Farm Lending”. We can also source lending for farms, but the criteria are different.

We can help guide you on the best way to approach funding for this type of property and have the latest information on which bank is best suited to your needs if you are purchasing a lifestyle property.

So, if you are thinking of making the move out of the city please give us a call.

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Borrowing for Investment Property

The Benefits of Investing

Over the long (and sometimes short) term, rental property can be a great way to build wealth.

Rental property (and housing in general) has been the favourite type of investment for Kiwis for a long time. The benefits of owning it include the potential capital gain, the rental you receive from it and the ablity to leverage against it to borrow.

Lending Rule Changes

There have been major changes in the way that lending rules have been applied to investment property, especially over the past few years. Our central bank – The Reserve Bank – has many roles when it comes to deciding how and when different monetary polices will be applied. One of the biggest policy changes to affect investment property owners and buyers over recent years has been the introduction of loan to value (LVR) restrictions which mean that you can borrow less against an investment property than you can against a home you are going to live in. The changes, rolled out firstly in Auckland and then extended to the whole country, mean that you can only borrow up to 60% against rental property.

80% Borrowing

For people wanting to borrow more against rental property there is some good news. A long as you have an owner-occupied property and are buying rental property we can arrange to have this bundled together and go to 80% across a combination of the two.

The reason this can be achieved is that the borrowing rules set by the Reserve Bank only apply to registered banks. “Non-Banks”, no matter how big are not governed by these rules. We have access to funding through these entities and can help answer any questions you have about borrowing through them Contact us

Property Types

When it comes to rental property there are many different options, and rules that affect them.

Commercial property is one option but a majority of investors choose residential.

Residential can be broken down into two main categories – Stand Alone property (houses on land) or multi-unit dwellings such as apartments. Each have their own challenges and rewards and each type is looked at in different ways by different banks at different times. Sounds confusing? It is. Every bank has lending criteria that changes all of the time. The differences are greatest when it comes to different types of property. Contact us and we’ll be happy to talk to you about the best options.

A Property Team

If you are thinking about buying rental property, then you need to surround yourself with the right people. You can read more about that here.

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