Most Australians now engage finance/mortgage brokers to assist with their home loan applications. The Mortgage & Finance Association of Australia’s (MFAA) Industry Intelligence Service (11th Ed) reports that brokers’ market share of all new residential home loan settlements grew to its highest share at 60.1% during the September 2020 quarter.
As this upwards trajectory looks like it will continue, we thought we’d give you some insight into what a broker actually does for you. Therefore, in this article, we will briefly discuss our process from when we receive your information, all the way through to settlement.
We hope that it will give you a better understanding of how and why we do what we do, in the hope of achieving a loan arrangement that will best suit your needs whilst ensuring that we act in your best interest at all times.
Understanding Your Specific Circumstances
Every borrower’s situation is unique. We all have different needs, goals and priorities. As such, the way in which we, as your finance brokers, try to understand your individual circumstances is by first collating all the necessary information.
This information includes (but not limited to) your income and expense details. There are many other details that are either mandated by lenders and/or regulators. Sometimes these details can seem burdensome or even overkill, however they are necessary in order to form a complete view of your circumstances and also to ensure compliance under the current “Responsible Lending” regime i.e. the National Consumer Credit Protection Act 2009.
We generally request the required information from you in writing via email or our document collection system, as well as conducting a comprehensive fact-finding interview with you. We prefer to conduct this interview face-to-face, as we feel that we are able to have a more personal discussion. However, we understand that sometimes this is not possible, and that’s why we also accommodate our clients by undertaking phone or video conference interviews.
Assessing Your Borrowing Capacity Prior to Formal Application Submission
As a first step, once we’ve received all of your information and documents, we then undertake a preliminary borrowing capacity exercise to ensure that you can afford the loan you require. We then follow this up with further borrowing capacity calculations utilising the lenders’ own servicing calculators once we have shortlisted the lenders we believe will suit your needs and circumstances.
In order to determine your estimated borrowing capacity, we look at three things:
- Your income – this is arguably the most important aspect of any borrowing capacity exercise, as without the necessary level of income, you may not be able to borrow the amount you are seeking;
- Your expenses – this is also very important, because lenders will look at your actual expenditure and spending habits and take a view on what your average living expenses are and then deduct the same from your income. If they feel your expenses are too low, they may then use their own default benchmarks (also known as the Household Expenditure Measure (HEM));
- Your savings and/or equity you have in other property – whilst this is important, it is not as important as income. A question we as brokers are regularly asked is “I have so much equity, why won’t the Bank lend me money?” and the answer to that is usually because your income is not high enough or your expenditure is too high. Savings and/or Equity assist with your Loan to Value Ratio (LVR) which determines whether you will need to pay Lenders Mortgage Insurance (LMI) or not. Generally speaking, an LVR of less than or equal to 80% will see you avoid LMI, anything above this LVR will usually attract LMI (some lenders however, may allow you to go up to 85% LVR with no LMI, ask us which ones).
How We Shortlist Lenders for Your Consideration
Once we have undertaken our full due diligence based on the information you have provided us with, after we have had our fact-finding discussion with you and once we are comfortable with your estimated borrowing capacity, we then start the lender shortlisting process.
We currently have over 30 residential lenders on our lending panel (not including our business, commercial and private lenders). All these lenders have several different lending products to choose from and these products combined literally number in the thousands. So without technology, the shortlisting task would be extremely difficult.
This is why we rely heavily on our system to filter out all the lenders and lending products that do not suit your needs, objectives and loan feature requirements. We input all the information that you provide us with and that which we ascertain during our discussions, into our system and based on those inputs, we are then able to short list the lenders that we believe will best suit your needs and circumstances. That is why it is crucial to ensure we have all the information necessary to undertake this process and that this information is as accurate as possible.
However, utilising technology is only one aspect of this part in the process. There is also much tacit knowledge that goes into what we do i.e. years of experience in dealing with clients that have varying degree of complexities in their lending structures and dealing with various lenders and understanding their respective policies and products.
This knowledge and experience holds us in good stead as your professional finance brokers to set a lending strategy that is complementary to your future goals, by understanding the flexibilities (or inflexibilities for that matter) of any potential lender or lending product and how that may affect the achievement of your future goals and objectives. We are also able to set lending strategies that complement tax advice provided by your accountant or legal advice provided by your lawyer. This knowledge and experience may be crucial to self-employed clients, property investors and developers, corporates or clients with highly complex entity structures.
So, whilst technology is a big factor in modern brokerages, experience and knowledge still plays a huge role in our day to day decision making and strategy formulation.
Your Funding Proposal
It is important to note that nothing gets done, and no application gets submitted to a lender without your approval first.
After we have shortlisted appropriate lenders, we put together a lending proposal detailing our recommended lender and the details of the proposed loan. A central part of our proposal is the Statement of Credit Assistance (SOCA) which details:
- Your advised requirements and objectives;
- Your monthly financial position;
- Summarises the lending products we have recommended based on the information you have provided us with, and information gathered during our discussions;
- It contains details of certain fees and charges payable and commissions that we and/or referral partners may receive in relation to the proposed loan from the proposed lender; and
- Compares the shortlisted lenders side by side so that you can see the benefit that the recommended lender provides you with, as opposed to the other lenders within the comparison.
Submitting Your Application to the Preferred Lender
Once you sign-off on the SOCA and our recommendation, we provide you with the relevant and up to date lender forms required to formally submit your application to the proposed lender. We ensure that we have completed as much of the required details within the forms as possible for your convenience, so that all you have to do is sign the form.
At this point, we also ask you for any other lender specific information and/or documents that may be required by that lender, as each lender may have differing requirements.
We would now also complete any identity verification requirements if not already done to date. Again, each lender may have their own process that we may need to follow.
Once you have signed the application form and we have verified your identity, we are then able to formally submit your application directly to the proposed lender accompanied by a detailed credit memorandum that details your financial position and requirements, to make it easier for the lender to provide us with a positive decision. Your application is then assessed by the lender in a process that can take days or weeks depending on the lender’s workflow situation.
During this process, the lender and their credit team will be in direct contact with us and we will liaise with them to answer any questions or concerns they may have about your application. This process can at times be quite lengthy, arduous and require a level of experience and negotiation. Of course this all depends on the complexity of your situation. Less complex scenarios may move through this process quite seamlessly.
Once the lender completes their assessment and provides their decision we then prepare for settlement (if your loan application is approved) by ensuring all approval conditions (if any) have been met and any discharge forms (if applicable) have been completed, signed and sent to your outgoing lender. Then, once your loan documents have been issued by your incoming lender, we get together and go through all the loan documents in detail and assist you in signing and understanding the loan offer. The executed loan documents are then signed and sent back to the lender.
If your loan was not approved, we then liaise with the lender to understand their decision and work with them to try to overturn their decision and find a workable resolution. The process may entail the collection of further documents and another round of negotiation or discussion.
Settling Your Loan
Once loan documents have been sent back to the lender, the lender then certifies that the documents have been executed correctly and then schedules settlement with the outgoing lender (if a refinance) or vendor (if a purchase).
During this time, we will generally liaise with all lenders (incoming and outgoing, if applicable) and your conveyancer / solicitor to ensure that settlement is scheduled and met as per the required due date. This is particularly important for purchase settlements given that financial penalties may be incurred for delayed settlements.
We then diarise to follow up with lenders to ensure that settlement has been booked for the due date and come settlement day, we again follow up to ensure settlement has occurred as planned. Once we have been informed, we contact you to let you know that your loan has settled.
However, this does not mean that our job ends here.
How We Can Help You Post Settlement of Your Loan
Whilst it is traditionally thought that a broker’s job ends at settlement, this is far from the reality.
We are still here to assist you with any queries you have regarding your finances whether that relates to your existing lending requirements or future plans.
Often times, you may contact us to review your lending structures given a change of circumstances, or just to get an update of your borrowing capacity in order to see if you can afford to purchase your next property. Other times, you may be needing assistance with changing a feature of your loan or to switch a loan to a fixed interest rate. We can and do assist you with all of these tasks thereby potentially saving you the time and inconvenience of waiting on hold or in queues at the branch.
For our clients with more complex structures, we also assist post settlement of their loans by undertaking Annual Reviews of their facilities, particularly where this is an ongoing lender requirement. This entails a very similar process to the initial application process, however, only usually required for commercial loans above $1 million or highly complex arrangements.
With lending in Australia becoming more and more complicated and difficult, it is no wonder why a majority of Australian borrowers are turning to brokers and heavily relying on us for assistance and advice.
Finance brokers can assist you with more than just your home loan. We actively assist our clients with:
- Investment loans;
- Commercial property loans;
- Business loans;
- Construction & development finance;
- SMSF loans;
- Private Lending; and
- Asset & equipment finance.
Our aim and purpose is to empower people and businesses so that they can define their own success. What this essentially means is that we utilise our many years’ worth of experience and knowledge of banking and finance to provide you with the options and solutions you need in order to achieve your goals. Our hope is that we can build a long-term relationship with you based on trust and excellent service.
Disclaimer: The information provided herein is for general information purposes only and does not constitute specific advice. It should not be relied upon for the purposes of entering into any legal or financial commitments. Specific advice should be obtained from a suitably qualified professional before adopting any investment/financial strategy.