Ep 19. Top Five things to do before speaking with a Broker
If you are thinking of buying, it’s important to prepare before getting a mortgage. In this episode, Michelle chats with mortgage broker Michael Chiel from Stonehouse Group who shares his top 5 things to do before speaking with a broker.
Here’s what you’ll learn from today’s episode:
Why planning on what you’re wanting to buy is an important step
How to do research on the property market
Understanding your deposit
Get to know your spending habits and budget
How being honest with your broker can work in your favour
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
Michael Chiel - Stonehouse Group
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Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
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Michelle: Hi, and welcome to another episode of the Buy Your Side podcast, the property podcast to help you make smarter property buying decisions. My name is Michelle and I am the principal of Michelle May Buyers Agents.
Now, today, I want to talk about all the things you have to do to get ready before you get a mortgage and in order to be able to do that, I invited the wonderful Michael Chiel, who is a broker at the Stonehouse group here in Sydney.
Michael. Good morning.
Michael Chiel: Morning Michelle, thank you for having me.
Michelle: Oh my pleasure. Now, I always get lots of questions from people who come to me wanting to buy a property and they haven't got their pre-approval in place.
I am not a broker. So I thought I'd invite you today to help our listeners understand what are the top five things to do before speaking with a broker? So you've prepared a list. Why don't you start with the top thing to start with?
Michael Chiel: Sure, I think that the first thing is really just to have an idea of what you're looking to buy, just to understand what area that you're wanting to buy in, what type of property that you're also wanting to buy. Is that a freestanding house? Are you thinking of an apartment? What are the non-negotiables? That's the key to really start with.
Michelle: So the top one is your ideal picture. You know, if you look at your life right now, what you need, you got kids. Do you want kids? Where do you work? How do you get to work? Write down that brief and then see what floats to the top.
Michael Chiel: Then I think the next thing is really to understand what sort of price point that would actually require. So I think one thing that might seem a bit counterintuitive, but I think it's quite important is to actually have a look at the sold section of realestate.com.au or domain or property websites, attending auctions yourself physically, because what agents quote for properties and what they end up selling for can be two completely different things.
Michelle: Oh my goodness. Michael, we're singing from the same hymn sheet. This is what I literally say every day. Do not look at price guides because they are very often so inaccurate and way out of line with, with the results. So absolutely a hundred percent agree with you - go to the sold section.
And I would also put a caveat on that and look at the date of when it was sold. Yeah, because you know what happened three months ago is very different to what's happening today. Interestingly, you know, we're getting some really interesting results. Some that are very, very strong and some that are not to, then you got to dissect that a little further and go, okay, why was that property actually sold for quite a reasonable price, less than what we were expecting? So I think that's really good advice.
But that kind of puts you into a kind of a chicken and the egg situation, right? Because you're painting this ideal picture of, okay, so this is what I want. This is what it's going to cost me, but you don't, you haven't actually spoken to anyone like yourself about what you can actually borrow.
So what else do you need to look at before speaking to a broker, what would be your top number three point?
Michael Chiel: Another item that's quite important. It's just to understand your deposit. Traditionally, the banks require a 20% plus costs deposit. So when I say plus costs that the main one being typically stamp duty and then other bits and pieces. So whether it's a conveyancing fee, buyer's agent fee, those costs as well. But if you don't have that 20%. So if you've looked at what the purchase prices are for those particular properties and you're sort of working backwards, well, actually I don't have that deposit. There are quite a few other options that we can look into and this is something that as a broker we will explain and go through. But whether you're a first home buyer, perhaps you've got government schemes available to you. So whether it's stamp duty reductions or even, you know, perhaps providing a 5% deposit and the government will sort of back you for the rest.
I should say as well if you don't have that 20%, that the general rule is that you pay lenders mortgage insurance. So you can borrow more than 80% of the property value, but there's just a few different bits and pieces. And that's something that as a broker, we help navigate to work out, you know, which bank is best to provide that, those options for you.
Michelle: So a mortgage lender's insurance, as I understand it is basically, a fee on top of your mortgage to protect the bank, right. That you will be guaranteed to pay back that mortgage. Is that correct?
Michael Chiel: Exactly. Exactly. So it gets added on top of the amount that you're borrowing. Yes. It's a little bit selfish, but you know, it covers the bank, in case you default, but it's paid by the customer. Um, you know, from our perspective, it's not very fair, but unfortunately, these are the rules that we play in..
Michelle: You think! And is there like a standard percentage that that fee is, or does that vary from bank to bank?
Michael Chiel: It varies from bank to bank. So it's definitely something that can be quite important too, to look at because two banks might have the same interest rate, but, um, and, and potentially the same features and all those sorts of things, but in terms of that premium, it might be very different. So you might save a couple of thousand dollars simply by going to bank A over bank B.
Michelle: And is that mortgage lender, insurance? How long is that in play for? Is it, is it a case that say after two years you get the house or apartment revalued and it has increased so much in value that then all of a sudden they go, okay. Yes. Now you have enough equity there. Is that how it works?
Michael Chiel: No, so it's just that one-off fee that's at the time of purchasing the property.
Michelle: Okay, it's not an ongoing payment.
Michael Chiel: So it gets added on top of the loan and it sort of included in your monthly repayments, but it's not like they're saying here's an additional fee every month as a part of the lenders’ mortgage insurance.
Michelle: Right. That's kind of confusing, isn't it? So it's good to talk to a broker to fine-tune this for sure. Okay. All right. But what about other things? Because obviously the government. You know, incentivises different parts of the home buying market, if you like. So we've got, you know, at the moment we've got the first home buyers deposit scheme that helps them out. We've got some stamp duty reductions in play. And at the moment, I think there's also a single parent scheme happening. Is that right?
Michael Chiel: Absolutely. So you know that then it allows someone to be able to get into the market with a much smaller deposit size.
One thing to keep in mind with that is that the applicant still needs to be able to cover the repayments of that loan. So, you know, perhaps they do have the 2% deposit, but you know, if their income doesn't support the loan, well, they're not going to be, you know, be able to purchase the property. So, yes, the scheme is great because the deposit size is smaller. But it's something to be mindful of that affordability still needs to be there.
Michelle: Yeah. Well, that makes sense. Of course.
So point 1, have an idea of what you want to buy. Ideal picture
Point 2, get a realistic gauge of the prices that have been happening in sales, of recent sales of your ideal property.
Number three is working out your deposit and then you would be going to fine-tune that with your broker to see whether you're eligible for that reduction in 20%, right so we're on the right track here.
Number four, what's your top tip, number four on your list?
Michael Chiel: Have a look through your living expenses, your budget, really. For a few reasons, number one is - what the banks say they can lend you and what might be affordable for your lifestyle can be two completely different things. So, you know, if the bank says, oh, we can lend you X amount, but you go through your budget and see the repayments for the loan is going to be, Y you might think, well, if rates change, or if I have an unexpected expense, I'm actually not going to be able to cover them.
That's something that really should be understood or, you know, thought about, you know, before applying for the loan. Because it's great if the bank says, you know, here's your million dollar pre-approval, but if you're only comfortable with paying for a loan that's $700,000. Well, that's probably where you should be.
Michelle: So now, my clients and my team know that I love a good spreadsheet.
Would you recommend putting all your costs and your, you know, your income into a spreadsheet and coming prepared to the broker with that already in place? So that, you know potentially you as a broker, provide something like that as well. But if you've already done the preliminary thinking about, okay, well on Mondays, I have my salsa classes on, on, on Tuesdays, you know, I have to fill up my car with petrol, Wednesdays, I usually have Uber Eats because I have a long day, you know, things like that, would that, do you think that's helpful?
Michael Chiel: Absolutely. So if someone has done that, that's amazing and very, very helpful, but we understand that the timeline that this might occur across varies quite significantly across people. So, you know, someone might want to buy a house in a week and other people, this process might take years.
Michelle: Yeah true.
Michael Chiel: So many people do come to us without having an idea and that's something that we help them with. So we do have those spreadsheets that work through what their expenses are, what their net pay is. And then we also incorporate what the actual property costs will be. So something to think about is, you know if you're buying an apartment, there's the Strata costs or, you know, for any property, there's the rates notices, water, things like that. And that a lot of people sort of don't think about, but yeah, with that understanding of the expenses and income we can then also factor in the actual home loan repayments. And that's something that is quite important for down the track with the actual structure of the loan, that people, I think, understanding your income and your expenses can really help by making sure that a broker is not just saying, oh, this one's the best for you. To make sure that the product's actually tailored for you.
Michelle: And I think also guessing, you know, and a little more long-term expenses. I mean, we've all been locked up at home in this country for the last couple of years. I'm sure that previously people went on holidays regularly doing overseas trips, that's coming back, put that into your spreadsheet as well, thinking - okay over the last, you know, 10 years, this is what, on average I spent on weekends away travelling. Maybe I need a new car next year?
But before we got onto this chat, you and I were having a bit of a chat. And you said to me, it's also about trust, right? Talk to me about that with your broker. How, how that helps the situation.
Michael Chiel: It's definitely very important to have that connection with your broker to feel that you're able to really share your position. Because at the end of the day, the broker, like the buyer's agent, is working for the client. And so we want to find the best application, the best lender put that forward to the bank. And so if we don't have the full picture, then inevitably the banks do find out what's going on. So by the broker, understanding everything that's going on, we can put forward the application to the best lender.
So, as an example, we had a client who don't ask me why, but he got half his pay paid into one account and then he got the other half paid into a different account that he didn't want his wife to know about
Michelle: Half?
Michael Chiel: Half.
Michelle: Wow, so my first question then, why are we buying a house together, people?
Michael Chiel: Maybe a good idea to see a counsellor before they see me!
Michelle: Oh, ouch. That's yeah…
Michael Chiel: But look, little things like that, that, you know, if they're not explained that the bank's going to ask why. I mean there's a myriad of other sorts of aspects of an application that could, you know, be not disclosed or what have you, that, that ends up having a major impact. But yeah, it's just important to have that trust with the broker. Share it. So then you're getting,
Michelle: Be transparent.
Michael Chiel: Yeah, exactly.
Michelle: Can I ask? Did they buy something together? What happened?
Michael Chiel: They end up not buying actually. We did get approval for them, but no, for whatever reason they did not buy together…
Michelle: Oh my gosh. I feel like you need to find out, Michael, you can't leave us hanging like that.
It's intriguing. Isn't it? The fact is people's backstory, the things that we get exposed to, but I think, yeah, point number four is being as transparent as possible with your broker about what money you have or don't have and putting a perspective on that. Because as you said, the banks are gonna find out whether you disclose it or not. And then you're going to be left a red-faced, trying to explain that to your significant other, you know, what's been going
Michael Chiel: With that as well, it's when you're talking about, you know, the 20% plus cost deposit, I think some people will initially say to me what amount they think they want to contribute to the purchase, as opposed to what they actually have completely available. And so when we're looking at the lender's mortgage insurance premiums, for example, if they contribute an extra $2,000, it might reduce the premium significantly.
But if we don't have that full picture, then we can't advise that. So that's just another reason why it's important to disclose all that information and to provide supporting documents.
Michelle:
Number five. What would you recommend people do?
Michael Chiel: I think one thing also is just to potentially think about your employment situation. Quite a lot of people are making that purchasing decision based on something that's going on at work. So whether they're relocating or, you know, maybe they're taking on a new job or whatever it might be, and that can influence the approvals with the bank. So, you know, if, if someone starts a new job, is that going to be okay with the lender. You know if they're currently an employee, but they want to become a contractor. Is that going to impact the application?
Michelle: Yeah.
Michael Chiel: So I'm not saying to put life on pause necessarily, but it's something to think about. And that's probably also a conversation to have with a broker they'll be able to assist to, to be able to say, you know, if you do change jobs, yes, it will impact your application or actually we've got lenders who are going to be completely ok with it.
Michelle: Yeah. Okay. That's very important. That just popped into my head that a lot of clients that I work with, you know, they are thinking about having a family, they potentially already have a child and, you know, wanting to have a second, maybe pregnant at the time of the application. Is this something that they have to disclose? Would it be a good idea? Not good. I imagine that has an impact on how much you can borrow.
Michael Chiel: It definitely has an impact, but it's very important to disclose that information. Number one, for the client's own benefit. So this is where that budget planner really comes in handy because we can have a look to see, well, what happens if income is reduced across the total application?
Uh, you know, forget about the banks for a second, but you know, are the clients actually going to be okay themselves to, to make those repayments. So how are we going to navigate that situation?
From a bank's perspective? Yes, it's very important because it's just, you know, the banks have different policies for things like maternity leave or whatever it might be. So, we can utilise them and make sure that everything is okay. There'll be nothing worse than submitting an application under false pretences. And then, you know, we've heard stories where assessors will look at clients’ Facebook, or…
Michelle: Really?!
Michael Chiel: Yeah, just, just doing the due diligence. So, you know, we've had a, uh, an evaluation completed. Um, and this sounds crazy, but the applicants were a couple with no kids, but the valuer took photos of the house as they do, and the backyard had different toys in it. And the assessor came back to say, do you have an undisclosed liability? Um, undisclosed dependent. Um, and I was like, no, this is our, like our grandkids, um, toys, you know, like this has got nothing to do with us.
And so it's just, you know, they see things. So it's just important that if something is going on, disclose it, and then that way we can actually work out, you know, the best route to navigate.
Michelle: I think I always say to clients, no matter how much you love a property, how perfect it is, it's not worth eating baked beans for, for the rest of your life. Right. Baked beans are great. I love baked beans, but not every day. What's the point of buying a fantastic property if you can't ever leave it, you know, actually have a proper life because you're so strung out by having to pay that mortgage, you know, weekly or monthly or whatever it is for a very long time.
So, that's a great top five. I really appreciate you coming in and giving us your insight. I think it will be very helpful for people who are looking to get a mortgage.
Thank you so much for your time, Michael, I definitely want you to come back for more insights into your broker's worlds and how you help buyers get on the property ladder successfully. So thank you so much. If people want to get in touch with you and learn more about how to get a mortgage, how can they best contact you?
Michael Chiel: Either feel free just to give me a call. My number is 0406607387. Or send me an email michaelchiel@stonehousegroup.com.au
Michelle: Thank you so much, Michael.
Now, for those who've been listening this will also be in the transcript so you can read back Michael's contact details. If you have any questions for Michael or myself as always get in touch with us at hello@buyyourside.com.au
Thanks for listening until next time.